Capital Gains Tax, Oasis and reading the tea leaves

Ahead of the Autumn 2024 budget announcement, Tax partner Craig Coyle has been reading the tea leaves, pondering the future of Capital Gains Tax and digging out some Oasis B-sides for our latest Insight. 

Don’t look back in anger

Rachel Reeves, as well as being the first female Chancellor, is the first Aquarian Chancellor since Harold Macmillan. Macmillan famously told the nation they had “never had it so good”. Now, whilst the contents of the Autumn Budget are not yet public, it seems clear that this is not the message the Chancellor will deliver on October 30, 2024.

The build-up to the Budget has been littered with warnings of “tough choices” and tax rises.  Given the pre-election promises not to increase income tax, NIC, corporation tax or VAT, there is limited scope for manoeuvre and rumours of Capital Gains Tax (CGT) increases have gathered pace.

Will Capital Gains Tax turn out to be the Chancellor’s Masterplan?

What might this increase look like? Theoretically, a tax increase aims to either increase Government revenues or drive behaviours. The latter, of course, is usually more associated with cigarettes and alcohol or the occasional champagne supernova.

A straightforward increase in the rate of CGT to either 40% or to match the income tax rate may not increase Government revenues significantly. It is more likely to drive behaviours such as individuals becoming non-resident, or selling from a holding company and maintaining that as a money box from which to drip the proceeds rather than realising a capital gain as current lower rates would encourage them to do. Tweaking the rate to 25% might increase the tax take slightly without being significant enough to encourage planning around realising tax at this rate.

A reintroduction of something akin to the old taper relief rules is possible. This would start with a high headline rate of Capital Gains Tax but with a reduction in the rate depending on how long the asset has been held for, and whether it is a business or investment asset. This regime would seek to reward those who have spent years growing trading businesses with lower rates.

Some might say, it’s all been a Capital Gains Tax ruse…

Another possibility is to introduce more bands and make the tax more progressive.  An increase in the rate for gains above a certain level would affect an increasingly small number of taxpayers and raise questions over how much revenue could be raised.

A cynic might say that one way to drive revenues would be to capitalise on rumours of a Capital Gains Tax change. The ensuing rush to undertake deals and crystallise liabilities would swell the Government coffers in the short term. This effect could be prolonged by declaring a consultation on CGT reform ahead of the Spring Budget in 2025.

Reading the tea leaves

The choices facing the Chancellor are unenviable; she will be aware that the impact of a CGT rate increase may be to damage the economy. But it is one of the few tax-raising levers which remain at her disposal. 

Clients have asked if we have a crystal ball we can consult before 30 October 2024. Unfortunately, this is not the case.  However, it appears that bad news may be in the stars and completing transactions ahead of that date, where possible, could be advantageous. 

Consilium will provide a full analysis once we read the Treasury reports rather than the tea leaves. In the interim, please feel free to get in touch with me or our Tax team.

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