Summer Finance Bill - Take Gains While the Sun Shines?

June 2017
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The Hung Parliament has added to uncertainty in the political sphere and while the minority Government appears to have secured the support of the Democratic Unionists, they will now influence future tax and spend policies, which may mean that policies, not mentioned in the Conservative manifesto, have to be adopted for pragmatic reasons. The recent announcement of the agreement with the DUP focused on spending on infrastructure in Northern Ireland, with £1 billion extra spending promised over the next 2 years.

What we do not yet know much about is the influence that the DUP will have on taxation and benefits policy. While the DUP at Westminster are considered to be a right of centre party, politics in Northern Ireland is somewhat different to the rest of the UK, right/ left divides on social and economic policy do not apply here in the same way they play out elsewhere. The DUP relies on its working class vote and for this constituency, preserving pensioner and in work benefits is a key priority. The Conservatives, bruised by their ill fated election gamble, have already retreated on a number of manifesto pledges; means testing of winter fuel payments and the downgrading of the triple lock to a double lock, along with self employed national insurance increases, have already been abandoned by a fragile Government not likely to want another election soon.

The Chancellor, Philip Hammond will be piloting a new Finance Bill in the next few weeks. Assuming that the Conservatives do not choose to completely abandon their aim to reduce public debt over time, a key differentiator between the Government and Opposition in the election, some taxes are likely to rise. While the Conservatives ruled out any increase in VAT during the election campaign, they were silent on other taxes. With urgent demands for more spending on the NHS, social care, social housing and policing and with key benefits cuts now abandoned, tax rises seem inevitable. We will not know until the Finance Bill is published what these will be but my money would be on an increase in capital gains tax. Such a measure would also likely secure the support of the Opposition.

In his last Budget, the then Chancellor, George Osborne unexpectedly cut capital gains tax (except for gains on residential property investments) by 8% to 10% for basic rate taxpayers and 20% for higher and top rate taxpayers. This low rate of tax, coupled with a generous allowance of £11,300 per taxpayer per year, flexibility for married couples and civil partners to share disposals between them (see Blog Post Independent Taxation part 2) and to carry forward earlier years losses, makes capital gains tax almost a voluntary tax.

It is never possible to know in advance whether new measures will apply retrospectively, ie backdated to the 6 April, or will apply from Budget day or the beginning of the next tax year. Governments of all parties rarely make a change retrospective but could do so. My prediction may be completely wrong. I got the result of the General Election and the EU referendum wrong, so I am not a reliable pundit. However it is must be an odds on certainty that capital gains tax will not be cut further. So, if you are fortunate to have amassed capital gains on your taxable investments and many investors have, then purely from a tax planning perspective, taking gains now while the current generous allowances and rates apply may be a useful bit of housekeeping to do.

Kay Ingram
Director of Public Policy, LEBC

Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment or product for your circumstances please contact an adviser. The Financial Conduct Authority does not regulate tax planning.

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