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Finance Industry News

Maximise ISA investments now to beat future CGT rises, says Healthy Investment


As the Chancellor announces tax consultation Healthy Investment chief executive recommends making the most of ISA allowances to protect assets from any future rises in Capital Gains Tax.

Maximise ISA investments now to beat future CGT rises, says Healthy Investment


"The best way to mitigate CGT is to invest using vehicles that are exempt from it in the first place, so these should be the first port of call for most investors."
Peter Green



Reacting to today’s Budget, Peter Green, chief executive of the friendly society Healthy Investment, welcomed the decision by the Chancellor not to announce any immediate changes to the Capital Gains Tax (CGT) regime, beyond freezing the annual exempt amount (AEA) until 2026. However, he also warned against complacency and recommended that individuals act quickly to take advantage of the current system and transfer as much of their investments as they can into ISAs, which are exempt from CGT and income tax.

Mr Green said, “It will come as a relief to many investors that no immediate increases to Capital Gains Tax have been announced, and that the Annual Exempt Amount remains intact. However, the political pressure to increase CGT is unlikely to let up and, with a wider consultation on taxation scheduled for 23 March, capital gains might be targeted next year, or the year after – and I think investors would be wise to plan on that basis.

“For many people that will mean maximising their use of ISAs, within which interest, dividends and investment growth are free of Income Tax or Capital Gains Tax. The best way to mitigate CGT is to invest using vehicles that are exempt from it in the first place, so these should be the first port of call for most investors.”

CGT is currently charged at a rate of ten per cent on taxable gains that, combined with the vendor’s income that year, take the taxpayer’s total income up to the threshold for payment of higher rate income tax. CGT is charged on the profit made when an asset is sold, not on the total value of the transaction.

Taxable gains that, combined with the taxpayer’s other income, fall above the higher rate threshold are currently taxed at a rate of 20 per cent. Higher rates (18 per cent for basic rate and 28 per cent for higher rate taxpayers) apply to the sale of second homes and residential buy-to-let properties.

Every individual currently benefits from an Annual Exempt Amount (AEA) for capital gains. No CGT is payable on gains realised in any given tax year up to the value of the AEA, which in 2020-21 stands at £12,300 per individual – and which, following today’s Budget, is set to be frozen until 2026.

Mr Green said, “One of the most common, and highly valued, uses for the AEA has been to sell assets in non-ISA investments and immediately re-buy them with a stocks-and-shares ISA, up to that year’s ISA subscription limit. This process, known as ‘bed and ISA’, moves assets out of the scope of CGT, from which ISAs are exempt, without incurring any tax on the transaction.

“The ever-present threat of CGT reform makes this even more urgent, because any potential reduction in the AEA would limit the scope for bed and ISA in future. I recommend anybody who might be affected to check how much headroom they have within this year’s AEA and ISA subscription limit, and make the most of bed and ISA while they still can.

“Don’t forget, too, that spouses and civil partners can give assets to one another completely tax-free, and that they will have their own AEA and ISA allowance. So, even if you have used up your own AEA or ISA subscription limit, you might still be able to transfer investments to your husband, wife or civil partner for them to move into an ISA and out of the scope of capital gains and income tax.”

Healthy Investment, which was founded in 1835 as The Independent Order of Rechabites, has its origins in the temperance movement that grew up during the Industrial Revolution. Today it provides ethically invested ISAs, Investment Bonds, Junior ISAs, Child Trust Funds and savings plans to more than 110,000 members.

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