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CGT Rate Hike on the Cards

12th November 2020

The prospect of capital gains tax rates (currently at 10%, 20% and 28%, depending on the asset) being brought into line with income tax rates (40 and 45%) has long been suggested in various quarters, although it is only since the financially troubled times the treasury now finds itself in that it has become a suggestion that has had legs outside of various think tanks.

The Office for Tax Simplification were commissioned in July to undertake a review of the CGT rules, and they have now recommended making such changes. This is likely to prove the stalking horse for Mr Sunak to implement them. The report also recommends the abolition of Investors relief (this allows for the reduced capital gains tax rate of 10% to apply to small investors who hold shares for more than 3 years).

What can be done?

ACT NOW.

If you are going to make a disposal which results in a significant capital gain, it may be wise to do so before the budget to take advantage of the current CGT rates.  The budget was originally to take place this autumn – we do not have a date for the replacement yet, but it is almost certainly going to be in March 2021.

What if there is no immediate buyer of my business/property waiting in the wings before the budget?

This sort of issue has arisen previously. In 2008, Taper relief – a very generous relief from capital gains tax for those selling business assets and shares- was scrapped. It was replaced by Entrepreneurs relief, a more narrowly focused relief that would have excluded from its scope many of those who were looking to dispose of their shares. Tax payers at the time had approximately 8 months’ notice of this change.

To bring any chargeable gain which could benefit from the taper relief rules into charge early, structures were set up which enabled an immediate sale to a family member or a trust. When a buyer of the business or assets concerned was finally found, the family member/trust would join in the sale.

There are a variety of strategies available to ensure that a taxpayer engineer a sale prior to any change capital gains tax rates. Some will rely on the cooperation of family members, and others on trusts. However, it worth noting that the legislation enacting these changes is likely to include various measures aimed at preventing taxpayers circumventing the rate hike. It is unlikely however that these will include measures taken retrospectively.

Author: Philip Alfandary