Note: The contents of this article are the author's opinion and have not been approved as a financial promotion.
Our latest research, which was published exclusively in The Times (Young Investors Cash in with Risky Crypto Bets), shows that the total value of Capital Gains Tax (CGT) paid by people under 35 has more than doubled in a year, from £192m in 2019/20 to £421m in 2020/21*.
Amy Shrives, our Director of Business Development, says that investments in cryptocurrencies and meme stocks played a role in this CGT increase, with these proving much more popular with under-35s than with older age groups.
During the 2020/21 tax year (before its correction), Bitcoin hit a high of more than £44,000 which prompted some investors to cash out, creating significant taxable gains.
Trading meme stocks – shares that gain popularity through social media – has grown sharply in popularity among young investors in the last two years. The most recent trending meme stock is US retailer Bed Bath and Beyond, which saw its share price briefly spike more than fourfold in ten days in mid-August 2022.
Meme stocks that were traded in this period include:
Blackberry – the Canadian tech business, once famed for its mobile phones but now specialising in cybersecurity, had a rapid rise price in January 2021
GameStop – the US video game and electronics retailer had a price spike in January 2021
AMC Entertainment – the US cinema chain and one of the original meme stocks
Young investors dealing with large, unexpected CGT bills may want to consider moving their gains into Enterprise Investment Scheme (EIS) investments. EIS investments allow individuals to defer CGT bills from previous gains until they exit their EIS investments. Any gains from the EIS investments themselves are free from CGT.
The Enterprise Investment Scheme (EIS) offers tax reliefs to private investors on income tax, capital gains tax and inheritance tax for supporting small, fast-growing UK businesses. The scheme has been hugely successful, generating £24bn for 33,000 SMEs since its inception 30 years ago.
Amy Shrives says:
“There are few things better than an unexpectedly successful investment, but the hefty tax bill can dampen the mood a little.”
“Putting those unexpected capital gains into EIS investments can be a great way to delay dealing with large CGT bills until they have had more time to prepare their finances to take the hit.”
* Source: HMRC. Year end April 5 2021
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