PM Starmer says next budget will be “painful” – what could investors do?

Worried about a possible increase in CGT? How you could potentially halve a CGT bill

In the past – for instance, in 1988 when Nigel Lawson announced the forthcoming increase of the CGT rate to 40% – many rushed to crystallise their historic gains ahead of the change. We might see something similar if investors fear changes to CGT in the Budget this October - nothing is known for sure. 

Whether you already have a CGT liability, perhaps as a result of the decreased annual tax-free CGT allowance, or expect to have one in the near feature, there are ways to mitigate that.

An option experienced investors could consider is backing dynamic young companies under the Seed Enterprise Investment Scheme (SEIS). These businesses are among the smallest, youngest startups in the UK and HMRC offers investors generous CGT reliefs in recognition of the very high risks. 

When you invest any portion of a gain in SEIS, you could reduce the CGT bill on that portion of the gain by up to 50%. You may use the relief on investments in the tax year of your investment, or the year before. 

You can invest up to £200,000 per tax year. If the full £200k is invested tax efficiently you could currently receive:

• Up to £100k (50%) in income tax relief
• Up to £28k or £20k (50%) capital gains reinvestment relief, depending on the type of gain and when it was realised
• Any growth is tax-free, the investment should also be IHT-free if held for two years and on death, and you could claim loss relief if things don’t go to plan. Please note: to use the CGT relief, you must have also claimed the income tax relief (up to 50%) in the same year. 

ISAs – tax-free growth and income

Every year, you can shield up £20,000 from tax on UK dividends, interest, and capital gains on investments within the wrapper.

SIPPs – up to 45% tax relief and tax-free growth

If you are eligible, contributing to a pension offers some of the most generous tax reliefs – including up to 45% tax relief on the way in and tax-free growth while you’re invested (you can read more in our article: Pensions: the most generous tax relief around?) 

VCTs

• Up to 30% income tax relief
• Tax-free dividends
• You can invest up to £200k per tax year
• Tax relief available in the tax year you invest
• You must hold the investment for at least five years

EIS 

• Up to 30% income tax relief – in same tax year, or 'carry back’ to reduce previous year’s tax bill 
• Capital gains tax deferral on gains made elsewhere
• Loss relief
• Inheritance tax relief (when held at least two years and upon death)
• You can invest up to £2 million per tax year (if including knowledge-intensive EIS) 
• You must hold the investment for at least three years to retain tax relief – you should expect to hold the investment considerably longer

SEIS

• Up to 50% income tax relief – in same tax year, or 'carry back’ to reduce previous year’s tax bill 
• Up to 50% capital gains reinvestment relief on gains made elsewhere 
• Loss relief
• Inheritance tax relief (when held at least two years and upon death)
• You can invest up to £200k per tax year
• You must hold the investment for at least three years to retain tax relief – you should expect to hold the investment considerably longer