In March 2020, the Chancellor announced the biggest change to UK Capital Gains Tax (CGT) in over a decade, resulting in the reduction of the Entrepreneurs’ Relief (RIP) lifetime limit from £10m to £1m and its ‘rebranding’ to the significantly less catchy, but easier to spell, Business Asset Disposal Relief (BADR).
A common theme of every budget ever since has been the impending threat of further changes and tax rate rises. This has whipped up a storm of pre-budget transactional activity with advisors and taxpayers alike trying to get their deals over the line in advance of their self-imposed deadlines, to save anything from thousands to millions of pounds. But this year’s Spring Statement feels… well… slightly different.
What has changed?
Not a lot. Since the 2020 budget, we have been in a global pandemic and, on the cusp of the major effects of that unwinding, have another crisis of a different sort on its way.
The treasury’s need for cash is as strong as ever and the relatively low CGT rates (generally impacting only the wealthier) are still the low hanging fruit when it comes to politically acceptable tax rises.
That said, all that wider uncertainty that contributed to a restraint on tax rises in the last couple of years still exists, now against a backdrop of the dramatic cost of living increases. Any tax rises that may risk ‘rocking the boat’ as regards to the economy are unlikely to be seen as a good thing.
There has been an increasingly vocalised thought that even the threat or rumour of tax rises at each budget have been enough to drive transactional activity, and enough to satisfactorily swell the coffers without the political risk of having to raise any tax rates.
Has the lack of activity specifically in the run-up to this Statement been because people believe this more than they have previously?
There is the other possibility that the surge in deals over the last couple of years has run its natural course. Despite everything, the UK deals market has remained strong, but there is only ever a finite supply of businesses at the right stage to transact, even if some may have brought their processes forward to ‘bank’ the current low tax rates.
If this is the case, it does make the case for tax rises more credible, though you would have to believe that, at this moment (as indeed for the two years previous), the Government has bigger things to worry about…
What next?
A change in CGT rates will likely be a “when” more than an “if” and, whilst the form that will take is all speculation, the good housekeeping around the holding of assets still applies, so make sure you consider:
- Your holding structures – there may be more than just CGT to think about, such as inheritance tax and the income derived from assets.
- Approved EMI share schemes still benefit from BADR and, with the lifetime limit of £1m, are still likely to provide significant value to any participants.
- The headline CGT rate of 20% is still relatively low in comparison to most other personal taxes, and the opportunity for crystalising at these rates still very much exists – for now.
Not one answer fits the bill, but we have people here at BHP who can help, so if you have any questions on any of the changes highlighted here, please contact your BHP representative to discuss.
