Over 16,000 people under the age of 35 paid Capital Gains Tax (CGT) last year, highlighting that many young investors are likely paying more tax than necessary, according to Bowmore Wealth Group.
Young people accounted for £338 million in CGT during the tax year 2022/3. With Capital Gains Tax rates rose last month as a result of the Labour party’s first budget, which means this figure is just going to increase in the coming year.
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However, the age group with largest number of CGT payers and the biggest CGT bill are those aged 55-64. There were 98,000 tax payers in this age bracket paying more than £4.75bn in CGT in the past year.
Charles Incledon, Client Director at Bowmore Asset Management, told us that the high levels of CGT paid by younger investors are often the result of investments being made in tax-inefficient ways, such as through general trading accounts instead of ISAs or pensions.
He explains:
“Many younger investors are unknowingly defaulting to general trading accounts on popular platforms, where gains are subject to CGT. This can result in unexpected tax bills when shares are sold. However, using tax-efficient options, like Stocks & Shares ISAs or pensions, could significantly reduce or possibly eliminate these tax liabilities.”
Incledon said it was encouraging to see more young people getting involved in equity investments, but too many are facing unnecessary tax bills that might have been avoided.
He emphasised the importance of tax-efficient strategies, particularly as CGT rates could continue to rise: “Young investors should make full use of their annual ISA allowance of £20,000 to help shield their gains from tax. As CGT rates go up, avoiding these avoidable taxes becomes even more crucial.”
Apart from ISAs, which are often the first port of call for investors, financial spread betting provides an additional layer of tax free trading for wealthier investors and traders who have already used up their ISA allowance. Beginners to financial spread betting should be careful to keep the leverage on trades to a minimum if using financial spread bets for their tax free advantages.
