As we approach the Autumn Budget on 30 October, speculation is rife about potential changes that could impact taxpayers across the UK.  

Over the coming weeks, this series of blogs will look at areas of tax that might be affected by the Budget, and the ‘what ifs’ that surround them.  

Today, we look at Capital Gains Tax (CGT).  

The current state of Capital Gains Tax 

CGT is charged on the profit made from the sale of capital assets, such as second homes, shares, business assets, and most personal possessions valued at £6,000 or more, excluding cars.  

At present, individuals pay 24 per cent on gains from residential property and 20 per cent on other assets.  

Additionally, taxpayers benefit from an annual exemption of £3,000 on profits or £1,500 for trusts. 

However, there is growing concern that these rates and exemptions may not last much longer.  

Speculation suggests that Labour might push to move CGT rates in line with Income Tax rates, which could lead to notably higher tax bills, especially for higher earners.  

If these rates were to increase, the tax burden on many could rise substantially. 

Crystallising and rebasing 

As speculation mounts about potential increases in Capital Gains Tax (CGT) rates, it may be wise to consider strategies like crystallising and rebasing.  

These are tax planning techniques that could help you manage your exposure to future tax liabilities. 

But what exactly do these terms mean, and how could they benefit you? 

Crystallising gains 

Crystallising refers to the process of realising or ‘locking in’ gains on your investments by selling an asset.  

When you crystallise gains, you effectively convert the paper profit you’ve accrued on an asset into an actual gain, which then becomes subject to the current CGT rates.  

This strategy can be particularly useful if you anticipate that CGT rates might increase in the near future.  

By crystallising gains now, you can take advantage of the existing lower rates, potentially saving a substantial amount of tax. 

Rebasing assets 

Rebasing is another tax planning strategy that involves resetting the base cost of an asset to its current market value.  

In practice, this typically means selling an asset and then repurchasing it, thereby establishing a new, higher base cost.  

This strategy is often used by investors who want to crystallise gains at the current tax rate and reduce the potential tax liability on future gains. 

However, rebasing requires careful consideration of the share matching rules, particularly with share portfolios. Contact us for more advice on successfully rebasing your assets.  

Consolidating capital losses 

Another strategy worth considering in light of potential CGT changes is consolidating capital losses.  

These losses can be relieved against future gains, potentially providing tax savings if CGT rates increase. 

By offsetting gains with losses now, you might reduce the tax impact of any future disposals, especially if rates rise as speculated. 

Estate planning and the resetting of assets 

There is also speculation that the Government might prevent assets from being reset to their market value at the time of death for CGT purposes, except for those subject to Inheritance Tax (IHT).  

Currently, this resetting reduces CGT liabilities for heirs when they eventually sell the assets.  

Reversing this policy could result in higher CGT bills for those inheriting assets not subject to IHT, prompting many to reconsider their estate planning strategies. 

What could this all mean for you? 

While these are just ‘what ifs’, they highlight some of the changes to CGT that the Autumn Budget could bring.  

As more information comes to light regarding CGT and the Budget, we will update you. 

In the meantime, if you would like advice or assistance on planning for the Budget, please contact us today.