Don’t panic – you CAN avoid the big grab on capital gains: JEFF PRESTRIDGE explains how to beat the budget and protect your wealth portfolio from Rachel Reeves’ tax claws

Of all the unpleasant personal finance measures announced in the Chancellor’s expensive and burdensome budget, the increase in capital gains tax (CGT) on share sales was the one that took most experts by surprise.

Not the increases themselves – chattering Treasury officials had made it public before the Budget that interest rates would rise – but the fact that they came straight away.

It means that anyone selling shares must now be aware that the old CGT regime no longer exists. Finito. New higher rates now apply.

So instead of investment gains being taxed at a minimum of 10pc. for taxpayers at the basic rate and at 20 pc. for taxpayers at the higher and additional rates, they will now pay 18pc respectively. and 24 pc.

Fortunately, the first £3,000 of profits collected in a tax year – the snooty ‘annual exempt amount’ – is retained (thanks Rachel Reeves).

According to the Office for Budget Responsibility, the new rates will provide very little additional revenue for the Chancellor’s kitty in the current tax year. But by the time the 2029 tax year runs its course, it will raise around £2.5 billion (helped by CGT income from a few other sources).

Yet for most of you who are currently on an investing journey – or about to embark on one – there is no reason why you should fall into this CBT gripe. By making sensible use of wealth tax packaging and smart reorganization of investments, you can even avoid this altogether.

Think how good that would feel – an asset portfolio immune to Reeves’ tax claws. Here’s how you do it…

Eat, sleep and breathe ISAS

An Individual Savings Account (Isa) is a wrapper that allows you to build an investment fortune tax-free.

This means that no CGT is charged on gains made on investments held in the tax-free wrapper – whether they are UK shares, international shares, unit trusts or investment trusts. There is also no tax on the dividends generated from the investments. And importantly, withdrawals from Isas are tax-free.

You should view an Isa as a personal tax haven – a top-up to a pension. So if you invest from now on, perhaps because of an investment article you read in this newspaper, I would recommend that you always go the Isa route. Think of Jesus.

If you already have an investment (stocks and shares) Isa, use it – don’t invest outside of it unless you’ve already used up your £20,000 annual allowance.

If you don’t have an investment in an Isa and you want to build long-term wealth, set one up.

It’s easy to do online – leading providers include AJ Bell, Fidelity, Hargreaves Lansdown and Interactive Investor. Most banks also offer them, and you can usually request information at a local branch or online.

As previously mentioned, the rules allow you to contribute a maximum of £20,000 to an Isa in the current tax year. If you’re married or in a civil partnership, that means a combined £40,000 – doubly generous. While you should always be skeptical of what politicians say, Mrs Reeves has stated in her budget that the £20,000 annual Isa benefit will remain in place until April 2030.

Think about that in cash terms. Including this tax year, it gives you the opportunity to put up to £120,000 into an Isa between now and April 2030 – £240,000 per couple. This gives you many options to protect your assets against taxes. If finances allow it, take advantage of it.

And don’t forget the investment Isas for your children. You can invest up to £9,000 a year in a so-called Junior Isa (Jisa) until your son or daughter turns 18. Family members can also deposit money into the account.

The tax benefits are the same: no income tax and no CGT. And Ms Reeves has also pledged to maintain this £9,000 annual allowance until April 2030.

Just one warning: unlike an adult Isa, a Jisa is only accessible from the age of 18.

Other anti-CBT measures…

If you hold investments outside an Isa, CGT only becomes a problem if you decide to dispose of them.

You may want to keep your portfolio intact – perhaps in the hope that in the future a new government will introduce a milder CGT regime with

a higher annual exemption (in 2019 this was £12,000).

But there’s nothing stopping you from gradually reducing your portfolio’s exposure to CGT.

For example, you can use your exemption to take £3,000 of profits tax-free each year.

Alternatively, you can sell £3,000 worth of shares and then, through a process called ‘bed & Isa’, buy them back into your Isa. By doing this you don’t pay CGT on the sale (the bed) whilst placing the shares in a CGT-free wrapper. Your Isa provider will do this for you. Please note that the transaction

must be within your allowable allowance of £20,000.

You can do the same with a self-invested personal pension (bed & pension).

Move assets

Finally, if you are married or in a civil partnership, ensure that any investments you own outside of Isas and pensions are held for your best overall tax benefit.

For example, you can transfer shares to your spouse without incurring taxes. By making such a ‘transfer between spouses’, you then have two CGT annual exemptions.

Transferring shares to the lower taxpayer partner also means paying less tax on future capital gains exceeding £3,000 – 18pc. instead of 24 pc. Your broker or investment platform should be able to help you transfer shares.

Yes, dear reader, with a little planning your investment journey can avoid the dangers of CGT. How glorious that will be.

• jeff.prestridge@dailymail.co.uk