An increase in Capital Gains Tax (CGT) rates now seems the ‘most likely course of action’ to be announced in the upcoming Autumn budget – due 30th October – according to Nicholas Nesbitt, Partner at Forvis Mazars.
Nesbitt made the claim following Keir Starmer’s recent warning of a ‘painful’ budget to address the UK’s public finance shortfall, anticipating that CGT rates could rise, possibly aligning with income tax rates or varying based on asset types (e.g., residential property, investments, business assets).
He advises that investors might consider realising gains now at current rates due to the reduced CGT Annual Exempt Amount (AEA), which has led to more frequent CGT payments. He also warns that deferring gains until death could be restrictive and that the CGT uplift on assets benefiting from Inheritance Tax (IHT) relief might be removed.
Elsewhere, Nesbitt expects potential changes in pension taxation, particularly the reduction of the Lump Sum Allowance (LSA) and the taxation of pension funds on death.
Nesbitt said: “Following the abolition of the Lifetime Allowance, the LSA is no longer linked to any wider legislation – and therefore the government could easily reduce the amount of tax-free cash individuals can take from their pensions.
“The taxation of pension death benefits has long felt anomalous – you get tax relief on contributions; you get tax-free investment growth and you can pass the funds tax-free on death.
“Given the level of wealth stored up in pensions, we expect that the new government may seek to tax pension funds on death moving forward.”
On the topic of IHT, Nesbitt does not foresee changes to the 40% headline rate or a reduction in nil-rate bands. However, he suggests the government could tighten rules on gifting, possibly by taxing larger gifts or introducing a lifetime gift limit.
He also mentions the potential removal of business relief on AIM assets and limitations on agricultural property relief. Given the uncertainty surrounding potential IHT changes, Nesbitt recommends cautious planning, particularly for those considering making gifts.
He also notes that the introduction of a wealth tax, while unlikely, should not be entirely dismissed.
Overall, Nesbitt emphasises the importance of proactive financial planning in light of these anticipated tax changes, as the forthcoming budget could have significant implications for investors, pensioners, and individuals planning their estates.
Source: Khan, Alina. FT Adviser. August 2024. https://www.ftadviser.com/pensions/2024/08/30/cgt-rise-most-likely-course-of-action-in-budget/.
Note:
This information is for education purposes only – it does not constitute financial advice and should not be acted upon without taking professional advice.
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