Capital Gains Tax (CGT) was established in 1965 by the Labour Chancellor in response to rising property values and investments after World War II, which had previously gone untaxed upon sale. Initially set at 30% in the 1980s, CGT rates were aligned with Income Tax rates in 1988, and gains realised before March 31, 1982, were exempt from taxation.
Many experts suggest that CGT rates may once again be aligned with Income Tax rates, but will the cut-off date for taxable gains also be adjusted?
We hope that Business Asset Disposal Relief (BADR), previously known as Entrepreneurs’ Relief (ER), remains in place to encourage entrepreneurship and business growth. However, there’s speculation about the reintroduction of Business Asset Taper Relief—an idea from Gordon Brown—which could maintain an effective CGT rate of 10% on the sale of qualifying business assets, but only after a longer ownership period. Could the regulations tighten further?
Additional potential changes to CGT may include limitations on Private Residence Relief (PRR) for primary homes and restrictions on hold-over relief for transfers to and from trusts, which would prevent the deferral of capital gains. A more contentious proposal is the elimination of the CGT-free uplift to probate value upon death, meaning beneficiaries would inherit the original CGT base cost of the deceased’s assets.
What should we be thinking about now?
CGT changes typically take effect from April 6, but there have been instances of mid-year adjustments in the past.
This uncertainty is prompting many taxpayers to accelerate planned disposals in order to benefit from current CGT rates, reliefs, and allowances. Remember, for CGT purposes, the disposal date is when unconditional contracts are exchanged, and there may be anti-forestalling measures to prevent attempts to artificially advance this date.
There’s still time to sell listed investments before October 30, 2024, but selling other assets, such as a business or investment property, often takes much longer unless a buyer is already secured.
If you aim to realise capital gains on your investments at the current CGT rates before October 30, 2024, keep in mind that if you plan to repurchase the same investments within 30 days of the disposal, the shares you buy back will be matched with those sold, negating the desired capital gain and any increase in base cost.
An alternative strategy is for your spouse to repurchase the shares or, with the help of an independent financial adviser, to buy them back within an ISA or pension fund.
As always, we’re here to help you navigate current tax legislation and keep a close watch on future developments! Do call CKLG at 01223 810100 for friendly guidance and support, no matter your circumstances.
