ADVICE
Andrew Rowe – managing partner of Azets Teesside .
Capital gains tax rumours :
Should asset holders stick or twist ?
Andrew Rowe , managing partner at Azets Teesside , offers investors advice following potential new changes to asset tax regulations …
Following new chancellor Rachel Reeves ’ recent Commons Statement announcing there would be a series of “ incredibly tough choices ” but that “ we will not increase taxes on working people ”, this may mean that the likes of capital gains tax ( CGT ) are open to a potential increase .
Rumours of a possible CGT hike have prompted many asset holders to consider selling their assets sooner rather than later , but this approach requires careful management and consideration .
Rumoured changes We have seen no definitive response and position from the new government on CGT . However , it is important that all asset holders be prepared for any scenario :
1 . Increase in tax rate Currently , the rates are 10 % for basicrate taxpayers and 20 % for higher-rate taxpayers on most gains , with 18 % and 24 % respectively for gains on residential property .
If new rates were to align more closely with income tax rates , then they could potentially rise to 20 % for basic-rate taxpayers and 40 % or even 45 % for higherrate taxpayers for most assets .
Should we see any hikes in CGT , aligning it with income tax would mean a significant increase for those concerned . But it may be that a halfway ground is found .
2 . Changes to the tax-free allowance The amount of profit that can be made on any asset before it is taxed varies depending on factors such as the type of asset and the seller ’ s circumstances .
For instance , individuals must currently make at least £ 3,000 profit on most assets before paying CGT .
If this threshold is reduced further , those who currently expect to make a tax-free profit might rush to sell , especially if they are close to the £ 3,000 limit .
Reducing the annual CGT exemption further could well push more people into having to complete self-assessment tax returns to declare their annual gains , and portfolio managers may have to rethink their strategies .
3 . Changes to reliefs Reliefs such as Business Asset Disposal Relief ( formerly Entrepreneurs ’ Relief ), which reduces the rate of CGT to 10 % on qualifying business disposals up to £ 1m , may be restricted or abolished . This change could particularly affect business owners looking to sell their enterprises .
The government ’ s balancing act The government faces a delicate balancing act in raising funds through CGT without driving wealthy taxpayers abroad , should it decide to go down this route .
The new chancellor has previously suggested aligning CGT and income tax rates , but this approach may be too extreme .
They must explore innovative methods to source funding for the upcoming year ’ s spending plan , which is expected to put strain on the Treasury , while carefully avoiding undermining the UK ’ s appeal as a business and investment hub .
Additionally , there is no guarantee on the revenue a CGT increase would generate , as many individuals may opt to hold on to their assets if the rate is deemed too high .
Strategic considerations It ’ s important for business owners and individuals to avoid making rash decisions .
Asset holders in a rush to sell may find themselves selling in a market slump or land themselves in a weaker negotiation position , as some buyers may be aware of their circumstances , potentially lowering the final sum received .
Furthermore , if many individuals decide to sell their assets , the increased supply could reduce market values .
If you are considering liquifying an asset in the short to medium term , it is important to speak to a professional advisor , stay up-to-date with any recent policy developments and be prepared to act if changes are announced .
Help is out there While we await any formal response on whether we ’ ll see changes to CGT , it is crucial to stay informed and consider proactive measures .
Whether it ’ s restructuring your business , adjusting your investment strategy , understanding tax implications or deciding the optimal time to sell assets , working with a professional advisor such as Azets can help ensure you make the right decisions .
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