Accounting firms disagree on future of CGT as General Election looms

As a general elections looms, several accounting firms have differing opinions regarding the future of the Capital Gains Tax (CGT).

With the forthcoming Autumn Statement (November 22) and the next general election taking place before the end of January 2025 at the latest, many business owners are considering realising their assets.   

In August 2023, Shadow Chancellor Rachel Reeves stated that a Labour government would not look to administer an increase in CGT. However, only a couple of months prior, the deputy Labour leader, Angela Rayner hinted that Labour would introduce several tax hikes if they won the next general election. 

Katharine Arthur, partner, and head of private client’s at haysmacintyre said: “While it is fairly safe to assume that if there is a change in government at the next General Election, an increase in Capital Gains Tax rates would be more likely, at this point it is still too early to know for sure.”   

If the government had intended to raise the Capital Gains Tax (CGT) they would have implemented it two years ago, she stated.  

Although reports suggest that the Conservative Party may alter taxes such as inheritance tax and CGT, accurately forecasting the outcome remains challenging, Arthur argued.  

“We may not have a clearer picture of what could be on the horizon until at least the Spring Budget in 2024 or the publication of party manifestos in advance of next year’s General Election.”   

Firms disagree on future of CGT 

But David Simmons, corporate finance director at Azets, said hiking CGT would be an “easy” revenue-raising option for the next government and so anyone aiming to secure the existing 20% rate upon cashing out should initiate the lengthy procedure promptly. 

“Whoever forms the next government will need to raise funds to fulfil manifesto commitments. We remain in deficit, but with growth stimuli plans seemingly in short supply and spending cuts not mentioned, it looks like tax increases, with CGT being a likely one.”    

Additionally, Simmons stated that raising taxes on business proprietors reduces the incentives for individuals to commence or expand a business, which harms the “person on the street”.  

However, Guy Sterling, tax partner at Moore Kingston Smith argued that because of the recent annual exemption allowance (AEA) reduction, a rate rise is not a “significant possibility” now.  

In the 2022 Autumn Statement, a cutback in the annual exemption was introduced from £12,300 in 2022/23, to £6,000 in 2023/24 and to £3,000 in 2024/25.    

“There is no longer any relief taking account of inflationary increases in the value of assets. It would be unfair to increase capital gains tax rates without giving some relief at this time of high inflation,” Sterling stated.  

“If rates do rise, it’s always possible to mitigate any tax due by crystallising capital losses in the same tax year that a capital gain arises.”  

This view is echoed by Arthur, who said that rather than a direct increase to rates it is possible that we could see changes being made to CGT reliefs, or further adjustments to the AEA if the government want to increase CGT receipts.   

“This is not expected to happen in the immediate future,” she added.   

Businesses must decide sooner rather than later  

CGT receipts have increased by over 100% in the past five years and reached a record level of £18bn in the last year alone, and a further 18% increase from the previous year, according to data provided by HMRC.   

Simmons said that any business owners considering a complete or partial exit to act promptly as the finalisation process can span up to a year.  

“You want to be talking to an advisor now and pressing the button in probably January at the very latest to crystallise some or all of your shareholder value and lock in CGT at the current rate or you risk capital gains tax potentially going up.”   

While Simmons stated that quick action is required for owners considering the realisation of an asset, Sterling asserted that there should always be an “investment rationale” for selling an asset.   

“It’s important that the tax tail does not wag the investment dog,” he added.