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Sunak's £20bn tax rise plan sparks asset sell-off among wealthy

Harry Brennan
·4-min read
Rishi Sunak cartoon
Rishi Sunak cartoon
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Wealthy individuals are selling off investment portfolios and second homes in fear of massive tax increases rumoured to be in the Chancellor’s autumn Budget.

Others are piling as much money as possible into their pension pots as their advisers are telling them to take advantage of tax breaks and the relatively low rates on offer now, before they go up dramatically.

It is all in anticipation of Rishi Sunak’s next Budget, to be announced before the end of the year. HM Treasury officials are understood to be contemplating sweeping tax reforms to pay for coronavirus and plug what is predicted to be a £322bn deficit, with total Government debt now outweighing the entire economy.

Changes could include increasing capital gains tax to bring it in line with income tax, reforming the inheritance tax system and scrapping tax relief for pensions. These are expected to raise at least £20bn in just one year – the biggest tax grab in a generation.

Experts have said rises are inevitable and have warned that Mr Sunak has the power to implement changes with immediate effect, leaving no time for planning after the announcement. But many also believe the combination of depressed asset values and historically low rates of tax on investment profits make now an almost perfect time to restructure holdings – and the benefits of doing so could ultimately outweigh the duties incurred in the interim.

Charles Calkin, of advisers James Hambro & Partners, said he thought CGT rates were the most likely to be increased in line with income tax, as under Margaret Thatcher, and that he was writing to all of his clients to encourage them to put their affairs in order. “First we were worried about Jeremy Corbyn and now it is coronavirus,” he said.

CGT rates have never been lower, after former chancellor George Osborne introduced a new 10pc rate on small gains from shares for basic-rate taxpayers.

The rates are 18pc or 28pc for residential property and 10pc or 20pc for other assets, depending on your tax rate and the size of the gain.

It makes sense for investors to rearrange their affairs and take a small tax hit now before things change, said Mr Calkin. “Many are sitting with portfolios that are no longer suitable, with too many investments in old British firms, for example,” he said. “They should be selling now when taxes are low and making better investments that could offset that tax bill. We have other clients who are selling out and paying CGT, but then transferring the money into their pension and claiming up to 45pc in tax relief.”

Others are selling off investment properties or passing them down the generations early, preferring to pay CGT now rather than the 40pc rate of inheritance tax when they die.

“One of our clients has just gifted his holiday home, which will be free from IHT as long as he lives for another seven years,” said Mr Calkin. “Tax rules mean he has to pay market rent when he stays there for the exemption to qualify, but that money is going to his children and is another way to limit the amount of IHT he will eventually pay.”

Simon Goldring, of wealth advisers McDermott Will & Emery, said he was helping clients make property gifts now, even if there was still a mortgage to pay.

“Normally this would attract stamp duty, but due to the temporary suspension of the levy on properties of up to £500,000 it is a good time to do it – providing an immediate saving of up to £15,000 – and may offset any tax payable on the capital gain of the home too,” he said.

“In one case a client has made a partial transfer, gifting just 50pc of the property to take advantage of the stamp duty saving, as well as shielding the asset from IHT, while only paying a small rate of CGT. Clients are cautious, but depressed values in stock markets and higher value properties, coupled with the real threat of tax increases, makes now a good time to be doing these things.”

Carla Brown, of advice firm St James’s Place, said she was telling her clients to put as much as they could possibly afford into their pensions, in case the generous tax relief on contributions was slashed in the next Budget.

The maximum amount that can be saved into a retirement pot tax-free each year is £40,000, with tax relief due at the same rate you pay income tax, although the limit tapers off for those earning more than £240,000.

“Higher earners who have not made use of the full quota over the past three years can carry forward any unused allowance to save more,” said Ms Brown.

“[Governments] have considered slashing the higher 40pc and 45pc rates of pension tax relief before, but now more than ever could be the time for them to finally do it,” she said.