By Alan Harvey
Public spending – and borrowing – hit record highs amid the Covid-19 pandemic and a shift is likely to be on the horizon to help get the UK’s finances under control.
Following the Queen’s Speech earlier this month, which referenced many changes in legislation, speculation around what it might mean in terms of taxation continues.
A key area to watch will be Capital Gains Tax (CGT). Perhaps surprisingly, the latest Budget outlined in March made little reference to it,
but we suspect it has not been forgotten.
In America, President Joe Biden is reportedly making moves to increase the CGT rate for those earning more than $1 million from 20 per cent
to nearly 40%, which raises questions around whether the Chancellor could follow suit with similar increases.
There might not be a crystal ball to give us the answers, but we should anticipate some degree
of change to be announced in the Autumn Statement or the next Budget.
Therefore, it is important to start thinking about what these changes could mean for your finances and whether there is an opportunity to minimise the impact by taking action in the interim.
It could be a good time to review investments and property portfolios and seek advice on the best next steps.
For clients with a large investment portfolio, for example, there might be benefit in selling parts of the portfolio now and paying CGT at the current rate, rather than facing a larger bill in
six or 12 months. For others, it might prompt a reassessment of the entire portfolio and strategy.
You may find you have significant long-standing holdings with large capital gains that you have previously been unwilling to sell or unable to sell within your capital gains tax allowance (£12,300 in the 21/22 tax year).
A review of the level of concentrated risk in your portfolio could change that. It could be a prime time to think about further diversification, for instance, by moving into a new geographical area or asset class.
Discussions around environmental, social and corporate governance investing continue to gain momentum, with large corporations starting to take notice, so you could decide to pick up on that as an alternative approach.
Thanks to the stamp duty break south of the Border and Land and Buildings Transaction Tax holiday in Scotland, the UK property market is booming, and house prices have hit record highs.
With that in mind, property owners may decide it’s a good time to sell – paying CGT before the anticipated increases come to fruition.
Decisions around property, in particular, will very much depend on individual circumstances and there will be other factors to consider before deciding to sell.
Landlords also need to consider the impact of additional changes, such as the new rules around offsetting mortgage payments against rental income. The process of phasing this out has been under way since 2015, but 2021/22 will be the first full financial year without the tax credit.
However, we have to bear in mind the surge in the property market could take a turn in another direction later in the year when the Government’s furlough scheme comes to a close. It may put pressure on mortgages and rent levels, meaning the market slows. It is another area to closely watch.
Regardless of your situation, when dealing with tax matters we would recommend seeking advice from a range of sources and building a team of trusted advisers to help you formulate a plan. A tax expert will be a key part of that, who can advise on the complexities and links between other factors such as corporation tax, income tax and dividend tax, which may also come into the conversation.
Most importantly, you should try to keep an open mind when approaching changes and be as flexible as possible.
It’s no longer a question of “if” the CGT changes will happen, more a case of when. The advice
you receive could be quite different or even contradictory to some recommendations made by financial planners previously, but the aim remains the same – however the goalposts might have moved.
Alan Harvey is a chartered financial planner
at Brewin Dolphin Glasgow.
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