When the Chancellor of the Exchequer starts exploring new ways to raise revenue, we all sit-up and take note!
It’s a given that Rishi Sunak has to raise revenues from somewhere, in order to replace the money he’s used battling the pandemic and trying to keep the country going. It’s also fair to assume that this money will be generated through a combination of Government borrowing and tax rises.
When the Government starts asking The Office of Tax Simplification (OTS) to hurry through its review of Capital Gains Tax (CGT), then we all stand-up and look very carefully at what’s going on. Especially as the Government’s commissioned report wouldn’t usually be fast-tracked, unless they had some very pressing ideas regarding how they wish to act upon its findings.
The Government first commissioned the report when the Exchequer realsied that they could find an estimated £14 billion if they doubled the rate of CGT. As a consequence the OTS have recommended aligning CGT to Income tax; and dropping the current £12,300 exemption down to a mere £2,000.
With all of this frenetic activity taking place, it does look more and more likely that these reforms are on their way.
Make Some Plans
It’s widely recognised and accepted that there is a very large abyss in the country’s finances, following the impact of the Corona Pandemic. It’s also accepted that this needs replenishing as quickly as possible. Fast tax rises seems to be one strategy that The Chancellor is looking to implement. Making this the perfect time for prudent stocktaking of current positions, along with some tax planning for the future.
Use It or Lose It
The best way for your clients to reduce any potential impact from a rise in CGT, is to quite simply make sure that they have used the current exceptions available to them.
An examination of their ISA’s or pension relief options maybe prudent. As there could be an opportunity to invest £20k into a tax-free ISA.
Or they could start or top up existing pension contributions where tax reliefs may also be under threat.
Lost it? Then use it
If client’s investment portfolios contain losses, then those stocks can be sold, in order to fix those losses and offset them against potential gains in the future.
It’s also worth remembering that you can, in most cases, offset the past four years losses against current gains.
Don’t Let Clients Sleepwalk into Massive CGT Bills…
…get them bed hopping instead!
Keep using the techniques available to minimise the amount of CGT your clients could be faced with.
- Transferring of assets between spouses or civil partners ensures that they will be exempt from CGT.
- ‘Bed & Spouse’ – One spouse, or civil partner, sells an asset to realise a gain, whilst the other partner immediately purchases it back. With this technique, it is important to keep good records and that the asset doesn’t pass back between those involved.
- ‘Bed & ISA’ – Selling shares or investment funds of up to £20k that produces a capital gain and then buying them back immediately inside an ISA. Obviously, the investment in the new ISA is free of CGT and Income Tax on any capital gains or income generated.
- ‘Bed & SIPP’ – This is where your clients buy back their assets tax-free, under the umbrella of their Self Invested Personal Pension (SIPP). With all future income gains within the SIPP being tax-free.
Variety is the Spice of Life
In the same way that your client base will be varied, there are a number of other ways you can look to mitigate your client’s CGT bill, all of which depends upon their appetite for risk and different investment and asset management strategies.
For more speculative investors there is the option to invest in small companies via a Venture Capital Trust (VCT) or Enterprise Investment Schemes (EIS’s).
One other notable option is to reduce your client’s taxable income. As the CGT rate has a direct link to the rate of Income Tax your clients pay, lowering their taxable income could lower the rate of CGT from 20% down to 10%; or from 28% down to 18%, if they are deposing of residential property assets.
Whatever your client’s preferred choice, one thing’s for sure, some clever planning now can pay dividends down the line; especially if the CGT rate doubles.
Whatever They Do, Make Sure They Do the Right Thing
We all know that tax planning can be an ever-changing game of cat and mouse between your clients and HMRC, often with you stuck in the middle.
That’s why remaining completely up-to-date with any changes, as well as being ahead of the curve when it comes to mitigating the impact they have, will put you firmly on the top of your client’s Christmas list.
At Blackstone Financial Management, we specialise in partnering with professionals such as accountants, for the greater benefit of both you and your clients, so please feel free to get in touch should you need to discuss any of the topics discussed above.
Informed clients are happy clients. Make sure yours are fully informed and absolutely delighted with the savings in CGT you could help deliver.
Getting in touch with us is simple & easy and will not cost you anything, whereas not getting in touch with us could be costly for you in the long term.