October 2024 Budget: Are Capital Gains and Inheritance Taxes Set to Rise?

With the Budget scheduled for October 30, 2024, it seems that Rachel Reeves is setting the stage for potential tax hikes. The primary targets are likely to be Capital Gains Tax (CGT) and Inheritance Tax (IHT), with possible adjustments to current allowances and tax reliefs.

Comparing the highest CGT rate of 24% to the top income tax rate of 45%, it's evident that there is room for alignment. One analysis estimated that aligning CGT and income tax rates could generate an additional £16.7 billion annually, although the impact on tax planning was not factored in.

For many taxpayers, this could translate to a significant increase in the capital gains tax rate, potentially rising from 24% to 45% on property sales or transfers, and from 20% to 45% on other assets like shares. To mitigate this impact, proactive measures should be taken before the budget announcement. This is especially crucial for individuals currently residing in jurisdictions with zero tax, given potential future implications upon returning to the UK.

One strategy might be to reset the asset base cost involves selling shares and repurchasing them after 30 days, or maybe having a spouse repurchase on the same day. Another possible approach is transferring shares to a Family Investment Company (FIC), which could lead to a lower tax rate of 25% under corporation tax instead of 45% under CGT when the shares are eventually sold.

Regarding property, it might be prudent to address potential tax liabilities sooner rather than facing higher charges later. Utilizing a family investment company could present an appealing option in this scenario, although the impact of stamp duty should also be taken into account.

These potential changes follow recent adjustments to investment profit tax regulations. The reduction of the annual tax-free allowance for CGT from £12,300 to just £3,000 under the previous government has made it much easier for investors to incur a liability, meaning that this increase will impact a larger number of people compared to before.