The chief executive of a prominent tax and financial advisory firm has issued a warning about a potential increase in Capital Gains Tax (CGT). Nimesh Shah, who leads Blick Rothenberg, believes that raising CGT could be a key strategy for Prime Minister Sir Keir Starmer to generate additional revenue for the government. Shah’s statement highlights growing concerns among financial experts about the government’s approach to tax policy.
Shah emphasizes that CGT currently contributes a relatively small portion to the overall tax revenue, amounting to less than 2% of total receipts. In the 2022/23 tax year, CGT generated £14.5 billion, a decrease of £2.5 billion compared to the previous year. This decline in revenue underscores the potential need for adjustment in CGT rates to bolster the financial resources available to the government.
Given the current economic climate and the pressures on public finances, Shah’s comments reflect broader discussions about the viability of increasing CGT. With the government exploring various avenues to address budgetary shortfalls, changes to CGT may become a focal point in upcoming fiscal policies. The anticipated rise in CGT could have significant implications for investors and property owners, affecting their financial planning and investment strategies.
To enhance tax revenue, Nimesh Shah proposes that Chancellor Rachel Reeves might consider increasing the Capital Gains Tax (CGT) rate to somewhere between 25% and 30%. This adjustment could be significant for boosting the overall tax intake. Additionally, Shah suggests implementing a lower CGT rate of around 20% specifically for sales of business assets. This lower rate could be designed to support entrepreneurial growth and stimulate business investments.
Shah explains that if you are in the process of selling a private business or a property, your ability to control the timing of the sale is limited. The sale process can be lengthy and unpredictable, making it challenging to plan for tax implications accurately. This uncertainty adds complexity to managing tax liabilities effectively.
He points out that there are options available to lock in a capital gain under the current tax rate. However, opting for this strategy requires committing to the tax payment by 31 January 2026. This deadline applies if the action is taken within the 2024/25 tax year, meaning you need to have completed the transaction and received the proceeds by then.
Shah underscores the importance of planning ahead and understanding the implications of the proposed tax changes. Without careful consideration, the increased CGT rates could significantly impact those involved in high-value transactions. The timing of transactions and tax payments must be managed carefully to avoid unexpected financial burdens.
Shah’s recommendations highlight the need for strategic planning in light of potential CGT rate increases. Businesses and individuals should prepare for possible changes in tax policy and ensure they have appropriate measures in place to handle any new tax obligations effectively.
He points out that investors who are selling listed shares and facing capital gains should be cautious about the CGT 30-day rule. This rule stipulates that if investors decide to sell their shares now, they must wait for a period of 30 days before repurchasing the same shares or shares in the same class of a specific fund. This regulation, implemented by HMRC, is designed to curb the practice known as ‘bed and breakfasting.’ In this approach, investors sell shares to realise gains and then quickly buy them back to continue holding the same investment, which could potentially manipulate CGT savings.
Shah also highlights that potential changes in CGT rates might drive some individuals to reconsider their tax residency status. Specifically, those affected might choose to leave the UK to become non-UK tax residents. By doing so, they could avoid CGT on their global assets, although they would still be liable for CGT on any UK property disposals. This shift could be a strategic move to reduce their tax burden if the CGT rates increase significantly.
Blick Rothenberg has proposed that, besides raising the CGT rates, there are other aspects of the CGT system that could be subject to reform. These reforms might include revisiting the current allowances and exemptions that apply to capital gains. Changes could also involve the way gains are calculated or reported, aiming to ensure a fairer and more comprehensive tax system.
Additionally, adjustments could be made to the timing and reporting requirements for capital gains, potentially impacting how and when taxes are paid. These changes could affect both individual investors and businesses, altering the landscape of capital gains taxation and influencing investment strategies.
Blick Rothenberg has suggested several potential reforms to the Capital Gains Tax (CGT) system, which could significantly impact taxpayers:
– Remove the £1 million limit on business asset disposal relief, which currently restricts the amount of relief available when selling business assets.
– Tax lottery and gambling winnings, although there might be a need to provide relief for losses incurred from such activities.
– Eliminate the CGT exemption for ‘wasting assets,’ such as wine and classic cars, which are currently exempt from CGT.
– Abolish the £3,000 annual CGT exemption, which allows individuals to realise gains up to this amount without paying tax.
– Cap the lifetime principal private residence relief that individuals can claim, although it’s noted that during the General Election campaign, Sir Keir Starmer indicated that this relief would remain unchanged.
– Remove the capital gains base cost uplift on death, though this might be addressed as part of broader reforms to Inheritance Tax.
Shah concludes that while the exact changes proposed by the Prime Minister and new Chancellor are yet to be confirmed, the trend of recent reforms, such as VAT on private school fees, suggests that the tax burden for investors and entrepreneurs is likely to increase.
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