Wealthy individuals are fast-tracking their tax and estate planning as speculation mounts that the Chancellor will wield his axe in the March Budget to help balance the books after its record-breaking Covid-19 spending.
Dhana Sabanathan, partner, private wealth, trusts and tax, Winckworth Sherwood, says capital gains tax could fall in the Chancellor’s eyeline, with 40% of CGT arising from those who made gains of £5 million or more in 2018/19.
Sabanathan said: “Many clients have wanted to trigger disposals prior to 3 March to crystallise the current relatively low CGT rate. Similarly, many offshore trustees have considered making larger distributions to UK resident beneficiaries concerned about a tax increase.
“We have also seen a desire to establish trust structures ahead of the next budget, with a view of triggering CGT and rebasing assets to current market value when they are settled on trust.”
There has also been much discussion as to whether inheritance tax will be affected, following recommendations from the All-Party Parliamentary Group that agricultural and business property reliefs, as well as the CGT tax free death uplift, should be abolished from IHT. The group also recommended that Potentially Exempt Gifts be scrapped and instead IHT be made payable on all lifetime gifts made above a certain threshold amount.
Talk of abolishing these rules has prompted many wealthy individuals to hasten making gifts during their lifetime, Sabanathan said.
Corporation tax could also come under fire, with considerable speculation about an increase of up to 24%.
Sabanathan said: “It is hard to reconcile such a move with the UK government’s aim to increase international investment in light of Brexit and the pandemic. Family investment companies have been a popular planning technique for wealthy families, and any potential corporation tax rate increase would decrease the efficiency of such structures in the short term. However, the ability to build value in the hands of the next generation whilst keeping control of the entity still makes these companies an attractive option.”
As well as tax cuts, the UK could be hit with a one-off wealth tax after the ‘Wealth Tax Commission’ group were tasked with analysing proposals for a UK wealth tax. The group has proposed a 5% one-off tax for total wealth above £500,000, with the tax payable at a rate of 1% per year over 5 years.
According to Sabanathan, this is a low threshold and would include many people who do not perceive themselves as falling into the ‘wealthy’ category.
Sabanathan added: “Whatever news Mr Sunak imparts on the 3 March, it is more important than ever for high net worth individuals to seek specialist advice about planning for the future. Many individuals are not averse to paying tax, particularly at the current time, but the Government will be aware that the wealthy have the flexibility of voting with their feet and moving elsewhere if they consider the changes to be too extreme.”
