It comes amid growing rumours the tax could find itself the target of a chancellor scrambling to fill a multi-billion pound hole in the public purse following the coronavirus pandemic.
Joshua Lee, senior broker at Gunner & Co, said it was widely accepted next year’s Autumn Statement was likely to include tax hikes, especially in relation to CGT.
He warned: “That is going to affect both your sale price, and the net proceeds from that sale. It will also affect business owners who are looking to work on in the next few years and the proceeds taken from running the business on an annual basis.
“No doubt it brings into question whether you look to make an exit or look to ride out the storm. It will be different for everybody.”
Earlier this month a 136-page review from the OTS called on the government to overhaul the current CGT system, advising instead its rates be more aligned with income tax.
Chancellor Rishi Sunak commissioned the review back in July, asking the OTS to consider the overall scope of the tax and the rates that apply, as well as the reliefs, exemptions and allowances.
The report found evidence of “distorted behaviour” in the current CGT structure that was often counterintuitive with “odd incentives”.
Although Mr Sunak did not lay out tax reforms in his November spending review, the OTS report has left many specialists expecting big reforms to CGT, including an inevitable increase in tax rates next year.
Mr Lee urged advice principals who still had time before leaving the market to focus on profitability, stating there was no “better way to offset increased taxation” than by increasing income into the business.
The OTS report also found the “relatively high” annual exempt amount of £12,300 “distorted” investment decisions, instead suggesting it be cut to less than £4,000.
George Bull, senior tax partner at RSM, said: “The OTS report has led to a widespread expectation that CGT rates will be aligned
with income tax rates up to 45 per cent.
“I can’t imagine that a hard-pressed chancellor will miss the opportunity to increase taxes in this way.”
But Mr Bull warned it was “dangerous to let the tax tail wag the commercial dog” and while it may be possible to maximise the value of a sale before April 2021, the landscape will be a “buyer’s market”.
He added: “If you are considering a sale or restructuring of shares in the company during the next year, it may be prudent to bring the sale or restructuring forward and lock into current CGT rates and reliefs.
“Evaluate whether it would be appropriate to sell the shares before the end of the current tax year, with proceeds payable in instalments. This might help achieve a better overall price.
“All the tax would be payable at the end of January 2022, but subsequent instalments of sale proceeds might be receivable over a longer period.
“If this route is followed, it is critically important that you have complete faith in the ability of the purchaser to pay the deferred instalments when they fall due.”
Last week, Mr Sunak warned the “economic emergency” caused by the coronavirus crisis had “only just begun”, with experts forecasting that the economy would remain scarred until 2025.
Clive Waller, managing director at CWC Research, said: “Simplistically, I would not sell for tax reasons unless a sale was in mind anyway. It often doesn’t work.
“We just do not know. If you plan to sell in the next one to three years, now might be good. Otherwise, struggle on!”
It is expected the government will borrow £394bn this year, or the equivalent of 19 per cent of GDP – the highest level of borrowing in the UK’s peacetime history.
Tim Holmes, managing director at Salisbury House Wealth, warned the rumours swirling around CGT rises were “very unhelpful to taxpayers”.
Mr Holmes added: “They put pressure on them to make risky decisions about what to do with their assets. It would be good to see the chancellor quickly provide clarity about the future of CGT so people don’t lose out unnecessarily.”
Potential upside
However, some advisers claimed it presented an opportunity. Minesh Patel, chartered financial planner and director for EA Financial Solutions, said the review gave advisers “the opportunity for us to have discussions with clients again”.
He said: “The review will provide the opportunity for us to talk to clients about this important subject.
“If we want to provide value and prove our service is valuable, this is a good touch point and a chance to review stuff with your clients.”
Rachael Griffin, tax expert at Quilter, agreed. She said: “[The proposed changes] provide advisers with an excellent opportunity to check back in with their clients and assess whether their current financial plan is still fit for purpose.
“The main message is that it is more important than ever before for clients to think about using their allowances and exemptions.”
Ms Griffin added the changes could also be a potential source of new business for advisers, as the number of consumers paying tax on capital gains would be expected to double each year.
She said: “Ultimately, this would mean that more people need tax planning advice.”
Sian MacInnes, adviser at Philip James Financial Services, agreed it would shake up the process with clients, primarily over inheritance tax planning.
She added: “Most clients regularly use the capital gains tax allowances in a small way, perhaps to make their Isa allowance each year from a general investment account and if there were no uplift on death, one might encourage the client to use the full allowance each year.
“However, if the capital gains allowance were to reduce as well, it limits options.”
According to Shelly McCarthy, managing director at Informed Choice, the changes could also see more people seek financial planning in terms of transferring assets between spouses to use allowances and lower tax rates where one spouse was a lower earner, as well as more gifting.
rachel.mortimer@ft.com and imogen.tew@ft.com
What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.
