With regards to CGT, the Labour party has said it will not hold a Budget immediately after the election, so I would want to see what further proposals are made before rushing into any hasty action.
Property investors are probably most exposed to changes, given the relatively illiquid nature of property as an asset. Equally, if you hold all of your wealth in property, rental income is subject to income tax and sales are subject to higher rates of CGT – there is much less flexibility in how it is structured than an investment portfolio of equities or bonds for example.
When combined with legislation that is increasingly in favour of tenants, this has led to some of our clients selling their property portfolios.
Our clients who are business owners will have their eye on any CGT changes. It was only in 2020 that 'entrepreneurs’ relief', as it was then called, was reduced from £10mn to £1mn.
Economic growth is a massive campaign pledge from all parties, but if Labour is serious about facilitating this it will need to ensure the changes they make still leave incentives for businesses to be based, and ultimately sold, in the UK.
One specific point that has long been a Labour policy is reform of the taxation of carried interest, which is a common way of remunerating private equity managers.
‘Carry’ is currently taxed under the lower rates of CGT (28 per cent), but Labour have argued it would be more appropriate to fall under the income tax regime.
While this change may not affect the majority of the population, it could make it more attractive for private equity firms, which are critical for growth, to relocate overseas where tax rates on carried interest remain low.
Our clients can take very different views on paying CGT. For some, they want to defer any tax liability until it is absolutely necessary, whereas others are happy to pay tax as and when it naturally arises.
I am personally of the view that paying a bit of tax along the way is not necessarily a bad thing, particularly with rates as low as they are. For those clients who are averse to washing out gains, I will try and have a discussion about the end goal.
Capital gains are washed out on death and so for some clients, who are in their later years, holding on to assets with gains may be the best option.
Rick Gosling is associate director and chartered financial planner at Five Wealth
