Investors sell before Budget

Business owners and investors with large shareholdings are taking profits while capital gains tax (CGT) is still low – even though next week’s Budget is not expected to introduce an immediate rate rise.

Advisers report that wealthy clients have been trying to trigger taxable gains in recent weeks, following predictions that CGT will be increased to reduce government debt.

“Many clients have been talking about triggering gains now, and there have been more sales of share portfolios than would usually be the case pre-Budget,” said Michael Wistow, head of tax at Berwin Leighton Paisner, the law firm. He said that, even if there was no CGT increase next week, one could follow in a post-
election Budget and be backdated to April 6.

Blick Rothenberg, the accountants, said some entrepreneurs had been looking to sell their stakes in private companies into life-interest trusts, to crystallise gains at 18 per cent while maintaining control of the assets. The firm has also advised a big shareholder in a UK listed company who is sitting on a gain of £24m.

Accountants Grant Thornton said business owners who could not complete a sale before the end of the tax year were using trusts as an interim tax-planning measure. “Some people are actually saying, ‘We don’t think we will get there with the deal but is there some way we could bank the gain now by selling into a trust?’ ” explained partner Paul Cooper.

However, Baker Tilly said private investors were not taking any significant action on capital gains ahead of the Budget. While investors with larger, more illiquid holdings have to give themselves time to sell, most private shareholders can easily dispose of their shares before any future tax rises.

“We don’t want to start panics,” observed David Kilshaw of KPMG.

KMPG and Deloitte said they were not advising private investors to sell shares as they did not anticipate any announcement on CGT next week. “We haven’t seen a sudden rush of people looking to sell, and think it’s unlikely the rate will go up,” said Lucy Hardwick, director at Deloitte. “That’s mainly because CGT only accounts for £2.5bn out of the £400bn a year that the government brings in.”

Advisers at Blick Rothenberg and Bestinvest said that even if the Budget included changes to CGT, such as a higher rate on short-term gains, it would be too difficult to introduce legislation before April 6.

Private investors are, therefore, unlikely to reverse the upturn in equity investing reported by Capita Registrars this week. New data showed that private investors added £121m worth of shares between December and February – the first net increase since May 2009. However, Justin Cooper of Capita warned that selling could resume: “This latest return to the market shows a distinct lack of conviction, as conflicting economic and political news has blown share prices in different directions.”