CGT ‘double tax hit’ splits IFAs

Advisers are divided over how and when to deal with a potential “double tax hit” expected to be announced in an emergency Budget on 22 June.

Chancellor George Osborne is believed to be preparing to raise capital gains tax (CGT) on non-business assets while also reducing the tax-free allowance.

Financial planners are concerned CGT on non-business assets could rise on a par with income tax up to 50%.

Meanwhile, the annual capital gains tax-free allowance could fall from £10,100 per person to just £2,000, if the new coalition government accepts the full Liberal Democrat tax package.

Baigrie Davies director Amanda Davidson pulled her advisers into talks on Monday to plan how to deal with the “significant” expected rise.

She says: “Our advice is if there are gains within the portfolio take them now, even in a smaller portfolio where the gains are £5,000 and we usually wouldn’t do anything, given a reduction in the allowance is on the horizon.”

Those with second properties will be hardest hit, she says. “To get a sale and completion before 22 June this year will be near impossible, but if the CGT announcement is for the 2011/12 tax year a lot of people will put properties on the market before next April.”

However, many advisers are worried a CGT rise could come into effect immediately after the 22 June emergency budget because of the financial urgency of Britain’s spiralling public debt.

Allenbridge Investement Consultants managing director Anthony Yadgaroff warns against inaction: “Those uncertain which funds to invest in can take the opportunity to ‘park’ their cash in an ISA account beyond the reach of the taxman while making a decision.”

Clients who want to keep hold of investments excluded from ISA wraps could also benefit from an inter-spousal transfer to a SIPP, adds Yadgaroff.

But advisers could find other bedrocks of tax efficient financial planning become redundant if the capital gains tax free allowance is reduced.

AWD Chase de Vere head of communications Patrick Connolly says: “The more the allowance is reduced the greater the equalisation between using unit trusts and OEICS and investment bonds, with more argument for using investment bonds, especially for new investments.”

He says clients with a large portfolio, not in an ISA wrapper, should probably sell ahead of the rise to reinvest in the same or similar vehicle after the required 30-day period.

“However, there are risks to being out of the market for 30 days as it is volatile at the moment,” he says.

Holistic tax planning using several tax wrappers could be a safer option for most people.
Brian Steeples, the CII’s first financial planner of the year in 2009, says: “Those with a normal investment portfolio of around £600,000 should be able to avoid CGT altogether if they can stagger the disposal of assets over two tax years.”