Has there been a Budget that has been more talked about or feared for months before it actually happened than Chancellor Rachel Reeves’ upcoming event on 30th October? I don’t think so.
Not only has the rumour mill about possible tax hikes been working overtime, but thousands of high net-worth (HNW) individuals have already started leaving our shores because of fears of what this government will do to their wealth – the UK is set to lose the greatest proportion of millionaires in the world in the next four years, according to the Adam Smith Institute.
There are all sorts of rumours flying around about what Rachel Reeves will announce in the Budget on October 30, but the loudest of them are predicting that capital gains tax (CGT) will rise to between 30-39 per cent depending on the asset being sold. An HM Treasury spokesperson has said these reports are “pure speculation”.
This levy is what is driving rich people away from the country already and it particularly worrying entrepreneurs who are building up their business to sell.
Capital Gains Tax (CGT) is paid on profits made when we sell assets, particularly businesses and buy-to-let properties.
What are the current CGT rates?
Right now, for most people, if you sell an asset for a profit – like a painting or a car for example – you can keep the first £3,000 of profit for free, but anything above that is taxed at 10 per cent or 20 per cent for higher rate taxpayers.
If you sell a second home (not the one you live in which doesn’t incur tax if you make a profit) the tax rate is 18 per cent, unless you are a higher rate tax-payer when it is 24 per cent.
If you sell a business, you can keep the first £12,500 tax-free but after that you incur a 10 per cent capital gains tax payment for ordinary taxpayers or 20 per cent for higher-rate taxpayers.
There are other ways in which CGT can be incurred but the above are the most common areas where ordinary citizens could find themselves paying this tax.
Who is affected by capital gains tax?
Around 350,000 individuals in the UK are affected by CGT each year. Two-thirds of CGT revenue comes from just 12,000 people (0.02 per cent of the adult population) who have average gains of £4million.
Like inheritance tax (IHT), the number of people affected is relatively small, but it is growing and the people affected are, in many cases, the ones who create business and wealth in the country. If we lose those people, as we are starting to do, that does not bode well for the economy.
What can you do about capital gains tax rises?
Investments held within certain accounts, such as ISAs, venture capital trusts (VCT), Enterprise Investment Schemes (EIS), and Seed Enterprise Investment Schemes, are exempt from CGT. So many sure you have money and assets wrapped in these tax-saving vehicles if possible.
Also, business asset disposal relief (formerly Entrepreneur’s Relief) may apply to certain business sales, which would reduce the CGT rate to 10 per cent.
Interestingly, investing in gold sovereigns can also cut down both your CGT and VAT payments. An idiosyncratic rule that still exists is that gold sovereigns are classed as legal tender (if they have been minted in this country) so you don’t pay VAT on them when you buy them and you don’t incur CGT if you sell them for a profit.
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Should you sell now?
Some people are wondering if they should sell their second property or their business now to avoid these possible capital gains tax rises.
Anyone who was going to sell this year anyway would be sensible to get on with it. But frankly none of us really knows what the Chancellor has up her sleeves (I suspect she is still considering what to do). So it’s not worth doing anything precipitately.
It’s never a good idea to sell a major asset in panic, Jasmine Birtles has warned
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It’s likely that any changes she does make won’t come into force until at least January 1 or even April 5 – that’s the usual way with these changes – so you would have some time to decide what to do anyway.
Also, it’s never a good idea to sell a major asset in panic. You could end up getting a very low price for it.
Essentially it’s a wait-and-see game for most of us.
Wait until the announcements are made and then, if you’re still unsure, pay for good, independent financial advice.
It’s worth it to make sure you do the right thing with your money.
Jasmine Birtles is a personal finance expert, TV and radio presenter and author of 38 books. Her website, MoneyMagpie.com, covers all aspects of personal finance from money-saving and money-making ideas to investment and pensions information
