Disposal of business, property and land could increase as the government slashes the capital gains tax allowance, warns wealth management firm Evelyn Partners.
The CGT allowance has been halved from £12,300 to £6,000 and will be cut further to £3,000 in the 2024/25 tax year.
Evelyn Partners said the changes have led to growing speculation that those with investments outside of tax wrappers might want to realise some gains to take advantage of the current exemptions.
In the 11 months up to and including February 2023, CGT generated receipts of £17.42 billion, which was 22% more than in the same period of the previous year.
Jodie Barwick-Bell, partner at Evelyn Partners, said: “It is a common-place in personal tax planning to defer paying CGT in certain situations. People who are gifting business assets or assets into trust choose to claim ‘holdover relief’. People selling their business and reinvesting some of the proceeds, as well as those structuring ‘earn outs’, benefit from the ‘share for share’ provisions.
“But is deferring a CGT liability still the right thing to do in these situations? This is the debate I have had several times over the last few weeks: should clients defer the CGT or actually choose to pay the tax now at 20%, for higher rate taxpayers?”
According to Barwick-Bell, the decision largely comes down to how likely it is that CGT rates will increase over the next few years.
She continues: “Often the money that would be used to pay the CGT is tied up in the new or gifted asset so it’s not a straightforward decision, as there are liquidity considerations as well. And it can also take months or often years to dispose of such assets.
“In my discussions there has been a consensus that CGT rates are more likely than not to increase after the next General Election.”
However, Evelyn Partners said that in most cases, the decision about whether to defer the gain or pay the tax doesn’t usually need to be made at the time of the transaction.
Barwick-Bell added: “You can decide when you file your tax return or potentially wait even longer to decide as long as you take action within the time limit for the relevant relief or election.
“For people who have this type of transaction or gift to report, it is worth just sense-checking do you definitely want to defer and pay the tax in the future at the CGT rate that applies when it does become taxable? Or is the certainty of a 20% CGT rate now a bird in the hand that you should at least consider?”
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