What can you do before the budget to mitigate Capital Gains Tax rises?

There is a widespread expectation that Capital Gains Tax (CGT) will be increased in the October Budget. This could be done in a number of ways including:

• Increasing the rate from the current rates of 20% and 24%.
• Realigning with income tax.
• Removing existing exemptions and reliefs.

What might you do in anticipation of any of the above:

• If you are already considering a sale, then bringing this forward to before Budget day would give more certainty over the rates that you will be paying. It is not impossible that rate increases could be back dated but this would be highly unusual and, in our view, very unlikely. Don’t forget that the tax point for CGT is usually the date of exchange of contracts and not the date of completion.
• If you had not previously considered selling assets to lock into current rates, there may be benefit in making sales now. This would of course mean paying tax now with the potential to save a larger tax bill in the future.
• Likewise, if you have any remaining Business Asset Disposal Relief allowance available (currently up to £1 million) and are considering selling assets that would qualify, bringing the sale forward would give certainty of being able to benefit from the relief. It is unclear whether any changes to the CGT regime would also involve changes to Business Asset Disposal Relief.
• If you are an EIS or VCT investor, you will be aware of the option to defer CGT on their acquisition. With a potential increase in rates there could be benefit in holding off from making a deferral claim for disposals which have already taken place. Claims to defer gains would normally be made on your self-assessment tax return, so if you haven’t already submitted your return and made a claim you may want to wait until after Budget day.
• Gifts of chargeable assets are treated as taking place at market value. Gifts can therefore be used to crystallise gains if, say, you wanted to gift assets to other family members or perhaps into a trust.
• Holdover relief can, in certain circumstances, be claimed on gifts of qualifying business assets to defer capital gains. There is a 4-year time limit for making hold over elections, so if this option is relevant to your circumstances then waiting until after Budget day to make a hold over election may be advisable.