What if Capital Gains Tax rates increase? An early look at the Autumn Budget

With the Autumn Budget fast approaching on 30 October, there’s plenty of buzz about possible tax changes that could hit UK taxpayers.

As we prepare for what’s ahead, this blog series will explore different tax areas that might be in the Government’s crosshairs and what potential changes could mean for you.

Today, let’s look at Capital Gains Tax (CGT).

Understanding Capital Gains Tax

CGT is imposed on the profit made from selling capital assets, such as second homes, shares, business assets, and most personal belongings valued at £6,000 or more, excluding cars.

At the moment, individuals face a 24 per cent tax on gains from residential property and a 20 per cent tax on other assets.

There’s also an annual exemption – £3,000 for individuals and £1,500 for trusts which currently offers some relief.

However, there’s a growing sense that these rates and exemptions might be short-lived.

Labour could push for aligning CGT rates with Income Tax rates, potentially leading to a surge in tax bills, particularly for higher earners.

If such changes come to pass, many could find themselves facing a significantly increased tax burden.

Exploring crystallising and rebasing

With the possibility of a CGT rate hike on the horizon, it might be practical to think about strategies like crystallising and rebasing to manage your future tax liabilities effectively.

Crystallising gains

Crystallising gains involves realising or ‘locking in’ profits on your investments by selling an asset.

This turns your paper profit into an actual gain, which is then subject to the current CGT rates.

If CGT rates do indeed rise after the Budget, crystallising gains now could allow you to benefit from the existing lower rates, potentially saving you a considerable amount in taxes.

Rebasing assets

Rebasing is a tax planning method that involves resetting the base cost of an asset to its present market value.

Typically, this means selling an asset and then buying it back, establishing a new, higher base cost.

Rebasing, however, needs to be approached with care, especially when dealing with share portfolios due to share matching rules.

If you’re considering this strategy, we’re here to provide the guidance you need.

Consolidating capital losses

In light of possible CGT changes, consolidating capital losses is another strategy worth exploring.

These losses can be offset against future gains, offering potential tax relief if CGT rates increase.

By using losses to offset gains now, you might be able to cushion the tax impact of any future asset sales, particularly if rates rise as anticipated.

Estate planning and the potential for asset value resets

There’s also chatter that the Government might do away with the practice of resetting an asset’s market value at the time of death for CGT purposes, except for assets subject to Inheritance Tax (IHT).

Currently, this reset helps reduce CGT liabilities for heirs when they eventually sell the inherited assets.

Scrapping this policy could lead to higher CGT bills for those inheriting assets outside the IHT net, prompting many to revisit their estate planning strategies.

How might this affect you?

Though these scenarios are speculative, they underscore the kinds of changes to CGT that could be on the table in the Autumn Budget.

As more details emerge, we’ll keep you in the loop with the latest updates.

In the meantime, if you’re looking for advice or support in planning for the Budget, we’re here to help. Contact us today.

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