Tax Bite – Looking ahead at possible CGT changes

In July, the chancellor asked the Office of Tax Simplification to review capital gains tax (CGT). In light of the ongoing Covid-19 pandemic and the need to rebuild the country’s finances, you will have no doubt seen the widespread speculation that this review will lead to rate increases.

It is impossible to predict what changes may come, and when they will take effect. The most likely worst case scenario is a set of immediate changes effective from the date of the Autumn Statement (i.e. from midnight the day before), possibly with anti-forestalling legislation to nullify any planning put in place in anticipation of changes. This is how it happened with the entrepreneurs’ relief changes in the Budget on 11 March 2020 which at the time was quite unexpected. We still don’t have the date for the Autumn Statement which is expected in October or November.

As CGT is paid at 20% on most assets, as against up to 45% income tax, an equalisation of the CGT and income tax rates or at least a significant jump in the CGT rate is feared by many. For business owners who are in a sale process now, the key message is: try to complete your sale before the Autumn Statement.  As we don’t yet know when the Autumn Statement will be this means complete as soon as possible aiming for late September/early October if possible.

For those currently involved in deals that for whatever reason won’t complete in time for the Autumn Statement, consideration could be given to a variety of potential ways of seeking to trigger gains in advance of any changes. However they all come with risks and downsides that would need to be considered in detail, not least the very real risk of anti-forestalling measures as noted above.

Looking further forward some clients whose sales are further away are looking into the possibility of emigrating before the sale if any rate rise is unacceptable and no doubt this thinking has been assisted by the recent long period of virtual working.  However this is a long term solution as the seller would need to be non-UK resident for at least 5 years to fall outside the UK CGT regime- we will cover this in a separate tax bite in due course.

For those people who have previously rolled over gains into loan notes which have not yet paid out, or who have shares which are subject to put and call options, they should give serious consideration to electing out of the rollover treatment or accelerating the exercise of the put and call option (in each case to the extent the buyer/issuer agrees).  There are many potential downsides which would need to be weighed up and this will not be the right solution in every scenario – no action should be undertaken in this regard without taking advice.