Tax will be taxing (it is just a matter of when and where)

There is growing speculation surrounding the late Autumn Budget and what it may bring. Rumours have been circulating, which could be the government testing public and media reaction or expectation setting with the result more palatable than first thought.

One inescapable fact is that the UK’s debt pile has risen to ordinarily unimaginable levels (c. £400bn). This shows how the pandemic has wreaked both a global health, and economic crisis, like no other in living memory.

Debt must be repaid, or at least reduced but with such economic fragility, too much too soon could have a significant impact on a recovery. The tightrope the Chancellor walks is made more uneasy by the fact we have yet to successfully defeat Covid-19. The winter could see the second or even third spike which could dampen recovery hopes and consumer confidence.

The main commentary we are seeing in the media surrounds capital gains tax (CGT). Earlier this year, Rishi Sunak wrote to the Office for Tax Simplification (OTS) calling for a review of capital gains tax in the run-up to Autumn’s Budget. This tax currently raises around £10bn but is paid by less than 300,000 people. The current rates are the lowest in recent memory which is why commentators are looking at this as an obvious area to attack with minimal impact to the voting majority.

Key facts (currently)

• Each individual has a tax-free annual allowance of £12,300.

• Basic rate taxpayers pay 10% on additional gains from shares and 18% if it is from property.

• Higher and additional rate taxpayers pay 20% on additional gains from shares and 28% from property.

These rates look very attractive relative to the current income tax rates and there is strong conjecture that this will be the direction of travel the Chancellor will choose as it will not significantly impact an economic recovery.

Reducing the threat of an increased CGT rate is an important factor for all clients to consider. Any major change to CGT and other tax rates will increase the attractiveness of sheltering investments within tax-free wrappers such as ISAs and SIPPs.

There are some simple steps to consider.

• Each individual has the same £12,300 exemption. A married couple can transfer assets between themselves, known as inter-spousal transfers, which are gifts free from tax. This would give a total exemption of £24,600.

• In addition, as assets can be transferred freely between spouses, it is prudent to consider the rates at which each spouse pays tax as it may be beneficial to transfer assets to the lower rate tax payer so that they can sell the asset in their name and resultantly pay a lower rate of CGT.

• Crystallising current losses can be offset against future gains. You can also carry forward losses but they do need registering within a 4 year timetable.

• There are other areas such as staggering disposals over tax years and donations to charities are tax exempt.

• If you feel it is likely that you may need to raise capital at a future point within your lifetime, it may be worth establishing that gain now to take advantage of the current rates.

There are many other areas that the chancellor is looking to change to recoup revenue, these may include reducing the tax relief on pension contributions currently enjoyed by higher rate tax payers, ending the so-called triple lock on state pensions, increasing corporation or inheritance tax rates.

Whilst much will be beyond our control, we are highlighting capital gains tax as an area worthy of consideration now. If you have any questions or queries on this matter, please do contact us.