Most independent financial advisers (IFAs) are now moving their clients’ money out of investments that attract capital gains tax (CGT), ahead of an expected tax rise in the emergency Budget on June 22nd.
A survey of 204 IFAs by financial technology firm 1st-The Exchange has found that 60 per cent are “already advising clients away from assets attracting CGT”, as a result of the policy proposed by the new government last week.
In its 11-point agreement, the Con-Lib coalition stated that its aim would be “taxing non-business capital gains at rates similar, or close to, those applied to income” – suggesting the current flat rate of 18 per cent would increase to 40 or 50 per cent. Changes to CGT are normally introduced at the beginning of the next tax year, in April, but tax experts at Deloitte warned: “investors will need to consider whether to crystallise gains now before any announcement is made.”
Rathbones, the discretionary portfolio manager, said it would be revising some wealthy clients’ portfolios to realise gains at the current rate. Accountants Saffery Champness forecast “a rush of sales of second homes.”
However, this is the first sign that mid-market IFA clients are switching holdings ahead of the Budget.
“June 22 is an important date for the industry, and we can already see that certain announcements are affecting IFAs’ advice to their clients,” said Paul Yates, a director at 1st-The Exchange.
Meanwhile, investors have been urging the government to make a distinction between short-term and long-term gains.
This week, FT Money columnist and Lib-Dem peer Lord Lee of Trafford wrote to chancellor George Osborne recommending two different rates. “Assets sold within three years of acquisition should be classed as short-term transactions, added to other income, and thus taxed at an individuals top rate,” he said. “However long-term gains – three years or more – should be taxed at a flat 25 per cent rate, up from the present 18 per cent.”
Fund manager Fidelity International is calling for a 20 per cent rate on long-term gains, in line with the basic rate of income tax. “We support the case for raising CGT for individuals who are seeking short-term speculative gains,” said Gary Shaughnessy, UK managing director. “Equally, we believe that all individuals who are saving prudently for the long term should be rewarded and this can be achieved by applying CGT at the basic rate of tax.”
Some advisers are now confident that the chancellor will retain a lower long-term rate – or re-introduce the ‘indexation allowance’ that adjusted taxable gains for inflation. Lee Symthe, partner at Killik & Co said: “I think it unlikely that a substantial flat increase in the rate would be applied without some return to the old system of reducing the burden for those holding assets long term.”
IFAs said the tax change they would most like to see is the reinstatement of the 10 per cent tax credit on share dividends for pension funds, according to 1st-The Exchange.
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