The Chancellor will raise CGT but will stop short of parity with the top rate of Income Tax, predicts Emma Baylis, Managing Director at Interpath and former Senior Policy Adviser at the Office of Tax Simplification.
The comments come as the Chancellor prepares the Autumn Budget on 30 October 2024 amidst speculation that changes will be made to Capital Gains Tax (‘CGT’).
Emma Baylis, who worked with the Office of Tax Simplification in 2022-2023, predicts that the Chancellor will avoid raising CGT to match the top rate of income tax at 45% and would more likely bring it in line with the higher rates already set for residential property at 24% or carried interest at 28%.
Emma also predicts that the Chancellor will consider raising the threshold of Business Asset Disposal Relief from the current £1m level to offer a more attractive incentive for entrepreneurs and investors.
Emma Baylis, Managing Director in the Tax Practice at Interpath Advisory, said: “The Chancellor is mulling over changes to CGT, but there are other more wide-reaching tax levers at her disposal, such as NIC or Income Tax, to ‘plug the gap’ in the public finances. So, this is clearly going to be a political decision and one that has been mooted for some time.
“Having spent considerable political energy winning over the business community and campaigning on the promise of increasing investment in the UK economy, I expect any move to address CGT will be more measured than what has been speculated. It will also need to consider the findings of the Treasury-commissioned report published in 2020 on CGT that warned of the potential impact of a hike in CGT on willingness to transact.
“Rather than ‘going all the way’, we’ll likely see a rise in the CGT rate that brings it in line with the higher rates of 24% on residential property or the 28% on carried interest, rather than hitting parity with income tax. The Chancellor will be mindful that investors and entrepreneurs in the market are unlikely to stomach much more than that.
“The mounting speculation on CGT has peaked conversations in dealmaking. In theory, vendors could try and crystallise a transaction before the Budget, or even before the end of the tax year. Of course, any advanced negotiations could get over the line before 30 October. However, for anything the goes beyond that date, any CGT changes may very well be accompanied by an anti-forestalling regime to cover an interim period. That’s why business owners can’t let the tax tail wag the dog, so the best advice would be to focus on getting transactions done where they make sense on their own merit, rather than transacting for just for the sake of the CGT rate.
“One of the measures outlined by the OTS in its CGT report from 2020 was to address Business Asset Disposal Relief (‘BADR’), which has a threshold of £1m, much lower than the previous level under Entrepreneurs Relief of £10m, and isn’t considered much of an incentive. A move to make BADR more generous could stimulate investment by entrepreneurs, help towards offsetting any tweaks to CGT, and generate more tax receipts from transaction activity as we saw when the higher residential rate of CGT was reduced from 28% to 24% in April 2024. While the OTS had suggested the possibility of a new regime, predecessor regimes have been a variation on a theme so a tweak to the existing framework would be the quickest and most efficient way to make an impact. The BADR tweak might be one of the smaller rabbits to be plucked out of the Chancellor’s hat.”
