Financial Insights -
Reduced Capital Gains Tax Allowance Impacts Investors
Reduced Capital Gains Tax Allowance Impacts Investors
As the CGT allowance approaches its lowest point in 42 years, anyone expecting to make gains on assets over £3,000 per year would benefit from exploring alternative tax-efficient investments.

Investments that fall into the category of ‘wasting assets,’ like wine and spirits, could help mitigate the reduction – more about those later.

Meanwhile, with the current CGT allowance currently slashed from £12,300 to £6,000 this tax year, investors are facing a further dramatic cut.

As a reminder to the 2023 Autumn Statement, the Chancellor announced in the March Statement plans to cut the CGT allowance in half to just £3,000 for the 2024/25 tax year. It’s the first time in 35 years that the level has been reduced in consecutive years and it spells bad news for investors. Profits could be impacted for those liable for the highest marginal rate of CGT of 28%, to the tune of £2,604 in extra tax. Even basic rate taxpayers will see a significant increase in CGT.

HMRC figures suggest that over half a million individuals and trusts could feel the effects, with 260,000 of them receiving a tax bill for the first time.

What Are the Rules

Whilst the overarching rule, that makes all capital gains on the disposal of assets (exceeding the annual exempt amount) will be charged at the investor’s marginal rate of CGT, there are some additional rules to note.

One allowance per individual: The CGT annual allowance cannot be shared, including between married couples. It applies to all of an investor’s personal annual capital gains in a tax year.

It cannot be carried forward: If an investor fails to use all, or part, of their CGT annual allowance, it can’t be held over to subsequent tax years. The following year will simply be reset to that year’s CGT rate.

Excess CGT must be reported: If an investor receives a gain that exceeds the allowance, they are legally required to let HMRC know and pay any additional tax that is due. It may also need to be declared on a tax return.

What About Collectables and Passion Assets?

The rules about taxing gains from wasting assets or chattels is a little foggier.

A chattel is defined as ‘tangible movable property’ and can include collectable items like art, antiques, fine wine or even a racehorse. These collectables fall into two categories: wasting assets (or chattel) or non-wasting.

A wasting asset is one that is considered to have a useful life not exceeding 50 years (at the date of acquisition). For example, the racehorse wouldn’t be expected to survive longer than 50 years so, if sold for a profit by the taxpaying owner, the gain would be exempt from CGT.

Items such as clocks, watches, cars or yachts are regarded as machinery, and HMRC considers plant and machinery to have a predictable life span of less than 50 years. Even if the item increases in value, it’s unlikely to attract CGT.

However, investors of collectables such as artwork, jewellery, stamps and coins should act with caution as items bought and sold (traded) for profit will most certainly be taxed.

The rules can be complex, so it’s advisable to seek professional advice.

Cheers to That!

So, all in all, the reduction in CGT allowance is sour news for investors who expect to see their collectable assets grow in value, but not so bad for those who own wasting assets such as wine and whisky casks that are exempt CGT, so the reduction in the allowance is largely unimportant.

That might explain the increased interest in fine wines and spirits. Smart investors have known of the benefits for some time and are already realising above average profits on the sale of their wines and whisky casks. The best part? Alcohol is usually considered as the ultimate wasting asset. In particular, whisky casks that undergo a natural evaporation process while aging, placing them firmly in the non-eligible tax category.

That, coupled with a lively and growing market, makes wines and spirits one of the most attractive investments available.

The global Scotch Whisky market alone, is worth over £6billion in exports, and with new, international trade deals being secured, analysts predict further record growth in this sector.

Whisky Partners have been helping investors to negotiate the market for some time, offering exclusive access to some of the world’s most prestigious producers of wine and spirits. With expert guidance, fully insured and bonded warehousing and a safe, online platform where clients can manage their own portfolios, Whisky Partners create opportunities for both seasoned and novice investors.

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