Personal finance
USE IT OR LOSE IT I
t is difficult for a long-term investor in this country to outrun inflation by a significant margin, whatever he or she buys. Why? Because of Capital Gains Tax (CGT).
Let’s imagine that you purchase an investment property
for £200,000. Over the next 10 years the value of the property increases by 4.5% each year, after allowing for maintenance costs, fees, etc. Inflation over the same period averages 3.5%.
After 10 years, the property is worth over £310,000; not a bad return you think (55%), so you sell it. unfortunately, you also get a Capital Gains Tax bill. You’ll pay 18% or 28% over the annual allowance (currently £10,900). Assuming that the gain is taxed at the higher rate, the bill would amount to £28,000, leaving you with £282,000: an £82,000 profit.
But wait a minute. Due to inflation, in 2024 £282,000 has exactly the same purchasing power as £200,000 in 2014, so you’ve not really made any money at all!
The point? As CGT is no longer indexed to inflation (it was until 2008) it is now effectively a wealth tax. The more
by Ian Thomas CFPCM Director, Pilot FINANCIAL PLANNING.
money you invest, the less help the annual CGT allowance is in protecting you from simply being taxed on inflation, rather than genuine capital growth, when you eventually sell. And the more inflation rises, the harder it will hit all UK investors.
As the financial year draws to a close on April 5th,
it’s therefore worth checking that you have utilised any relevant allowances and reliefs to ensure that you do not pay more CGT (or indeed any other tax) than is necessary, now or in the future.
iSAs
This year it’s possible to shelter up to £11,520 in a ‘Stocks & Shares’ ISA – equal to more than £23,000 for a married couple - but if you miss the April deadline this rare gift from the Chancellor is lost forever. Over time, it’s quite possible to build up a substantial fund that grows tax efficiently and can be accessed at any time, with no income or capital gains tax payable.
leading the way in financial planning & wealth management
For more information contact Ian Thomas 01803 839 194
ian@pilotfinancialplanning.co.uk
Pilot Financial Planning is authorised & regulated by the Financial Conduct Authority.
www.pilotfinancialplanning.co.uk
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