The UK Autumn Budget 2025 is set to be released on the 26th of November, and following the country’s economic performance in recent times, speculations are leaning towards the possibility of a tax increase. However, because the Labour government is keen to avoid raising income taxes for working people, much of the focus is expected to shift towards the wealthy, with potential changes to inheritance tax, pensions, and capital gains tax (CGT). For Welsh investors, any shift in CGT could have a significant impact on their earnings, and while the changes haven’t been announced, many are already wondering how to stay ahead of the curve. Here is a quick look at how to prepare strategically for such changes if they are implemented.
Understanding CGT Reform and the Potential Impact on Investments
If you don’t already know, capital gains tax is the amount charged on the profit someone makes when they dispose of an asset that has increased in value. For market investors, this fee is essentially charged when buying or selling an asset to generate a profit. Let’s say you purchase an asset for £5,000 and sell it for £25,000; the government is liable to tax on the £20,000 gain made on this investment. The current CGT rate in the UK is 18% for basic taxpayers. For higher or additional rate taxpayers, the rate is 24%.
It would not be a huge surprise if the government opts to align the CGT to match the income tax, considering the fact that the highest CGT is still much lower compared to the 45% income tax rate. A reduction of the annual exemption, which is currently at £3,000, is also possible. Automatically, if any of these changes occur, expect more money to be deducted from your overall earnings. While CGT is a UK-wide policy, the effect on Welsh investors could be particularly significant, given the region’s growing property market and increasing interest in retail investing.
How Can Welsh Investors Navigate Potential Tax Reform?
While investors cannot change economic policies, they can find strategies to cushion the impact of such events on their portfolios. By strategically choosing the right accounts, assets, and timing, you can maximise your returns while reducing possible tax liabilities.
Review Your Current Investment Structure
Now is the time to assess how exposed your portfolio is to CGT. Identify which assets carry substantial unrealised gains, such as investment properties, equities, or digital assets, and start calculating your potential liabilities if rates increase. Certain individual investments can also be tax-efficient. Tax-efficient investments, like spread betting, exchange-traded funds, or treasury products, can significantly reduce tax liabilities with strategic investment. Spread betting, for instance, is one of the few investment opportunities that are not taxable in the UK, and by extension, in Wales. At the same time, ETFs typically generate fewer capital gains, which can lower tax burdens. What’s most important to note is that diversification is key. A well-balanced mix of tax-efficient and growth assets provides flexibility and reduces your risk if the rules change.
Differentiate Between Short-Term and Long-Term Gains
You might not know this, but in some countries, like the US, long- and short-term gains don’t necessarily come with the same tax responsibilities. Investments are often taxed differently based on how long they are held. Longer-held assets are sometimes taxed at lower rates, while shorter-held investments are taxed at a higher rate. This rule was made mainly to encourage long-term investments. While the reality is different in the UK, and both long- and short-term gains are taxed under the same CGT framework, there are still ways you can work around it. Spreading your long-term CGT gains across multiple tax years can legitimately reduce your CGT bill in the UK. The UK tax year runs from 6 April to 5 April. By timing your disposal (selling investments) to fall in different tax years, you can get multiple annual allowances, or keep yourself within the basic rate band of 18% yearly.
Making the Most of Annual CGT Allowances
Another easy tip is to manage CGT liability by using your annual tax-free allowance effectively. The allowance has already been cut in recent budgets and may likely face further reductions. Regardless of what happens, using it wisely can help you side-step or reduce your liabilities. For instance, you could spread sales across multiple tax years to stay within the exemption threshold each year. If the allowance remains £3,000, as long as your gains do not exceed that within a tax year, you’re not liable to pay tax. Another helpful tip is that couples can double their total allowance by transferring assets to their spouse before disposal. Just like you, your spouse is also eligible for the allowance, so work with them. If you’re saving your profits towards a pension, it might make it easier because ISAs and pensions shield investment gains from GGT. While these earnings are also liable to taxation, they come with some tax relief and reductions that can help limit your liabilities.
Staying Informed and Analysing Market Trends
The possibility of these tax increases remains speculative. They do not hold ground yet, but anything can change by November. In most cases, investors are the first to react to such market news, and considering how volatile most financial assets are, prices may begin to fluctuate. Stay on top of such market reactions to avoid being caught off guard. You can leverage analytical tools like TradingView to monitor real-time market data, analyse technical trends, and make informed buying decisions. You can also follow credible sources, such as the HMRC and House of Commons Library briefings, as well as other financial platforms, for early indicators of policy shifts.
Planning Ahead
While it’s still uncertain what the autumn budget will bring, the direction points to the CGT being under scrutiny. As the year-end announcement approaches, be on the lookout for every policy change and how it affects investors’ sentiment. Staying informed about both government announcements and market reactions can help you adjust early.