Typically, we avoid speculating on potential changes in tax legislation, as discussing the ‘what ifs’ can often be unproductive. While the doomsayer’s predictions rarely come to pass, we believe an exception is warranted in this case. It appears highly likely that Labour’s first Budget in fourteen years will include changes to Capital Gains Tax.
The current regime is straightforward: higher and additional rate taxpayers pay 24% on residential property gains, 28% on carried interest, and 20% on everything else. However, if the ‘everything else’ qualifies for relief under Business Asset Disposal Relief (BADR), they pay 10% on the first million.
We have no idea what Labour’s plans are… and indeed if there are any at all. Based on the limited information available, it appears that any changes would likely encompass some or all of the following elements:
- The alignment of the Capital Gains Tax rate with Income Tax, meaning it may go from 20% to 45% for the sale of shares (and maybe even from 10% to 45% on BADR qualifying disposals).
- Reintroduction of Indexation, which allows for tax-deductible depreciation from the time the asset is acquired until it is sold.
- Taper relief, a relief that was introduced prior to the current system, which adjusted the tax rate on gains based on the nature of the asset and the length of time you held it. Unsurprisingly, the trading asset you held for a long period of time would attract a lower tax rate than a short-term asset in the stock market.
- The scrapping of the 28% rate on carried interest gains and taxing them as income
- Any changes could be effective as of the date of the budget 30 October 2024.
As mentioned, we believe that speculation can be unhelpful and, in some cases, dangerous. However, we cannot plan based on hindsight. We therefore understand and sympathise with those seeking to trigger transactions before 30 October 2024, as the anxiety over a potential significant increase in tax liability outweighs the uncertainty of what may happen.
A word of warning: We wouldn’t be surprised if, along with any other changes introduced by the Chancellor, Rachel Reeves, in October, there are anti-forestalling measures to negate transactions aimed at avoiding the new rules. For example, using a connected party sale of that asset.
We understand that this is a challenging time, and selling assets can be a lengthy process. We also recognise that the lack of clarity is frustrating. We do recommend consulting with your advisors now to develop a plan tailored to your needs.
What next?
If you have any questions or concerns regarding the information provided, please reach out to the Gravita tax team here. It’s crucial to seek advice about your options to fully understand the potential tax implications.
