A huge tax raid on stocks, shares and investments has been announced by Chancellor Rachel Reeves which means thousands of people face paying more in tax.
Although the Labour Budget stopped short of increasing the tax on people selling second homes, the Chancellor did decide to increase Capital Gains Tax on investments.
The government has announced that Capital Gains Tax rates will increase from 10 percent to 18 percent for a basic rate taxpayer and from 20 percent to 24 percent for a higher rate taxpayer from April 2025.
That means that anyone selling investments will stand to lose 18 or 24 percent of the profits to tax following the change.
The 8 percentage point rise almost doubles the amount of tax that basic rate taxpayers will pay when they sell stocks, shares and investments which have grown and made a profit.
But there is a way to legally avoid all of the tax entirely – if you use a stocks and shares ISA.
Stocks and shares ISAs are completely protected from tax for the first £20,000 invested.
You can also have a stocks and shares ISA open at the same time as a regular savings account ISA, as long as you only deposit a maximum of £20,000 across the two accounts in a single tax year from April to March.
Any money added to a stocks and shares ISA can’t be taxed and neither can the profits. If, for example you added £10,000 to a stocks and shares ISA and that grew by £2,000, you wouldn’t pay a penny on that in tax. And the £20,000 allowance resets annually, so you could have £100,000 in there in five years and still pay no tax.
The best stocks and shares ISA on the market in terms of fees is Trading212, but the platform isn’t as established as some of the market leaders.
Many investors use Hargreaves Lansdown, which charges 0.45 percent per year but has access to a huge range of funds from active investing to passive funds like the S&P 500.
AJ Bell is another big trusted name, which charges 0.25 percent fees per year.
There’s also Vanguard, which takes between 0.25 percent and 1.49 percent but only sells its own funds – you can’t for example grab shares in a specific company.
Whichever one you choose, you cannot be taxed Capital Gains Tax on any of the money you deposit into these ISAs or any of the profits you make even when you withdraw the money.
Just remember that investments can go down as well as up, and don’t invest anything you couldn’t afford to lose.
