Fears over UK capital gains tax hike spark sell-off

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Business owners, property investors and shareholders are reacting with frenzy amid concerns that the UK government will raise capital gains tax in the October Budget, property managers and tax experts say.

Earlier this week Sir Keir Starmer sent the strongest signal yet that the Labour government would raise taxes to plug a $22 billion surplus in the public finances in its Budget on October 30.

The budget is due in October and it will be painful, Starmer said in a speech on Tuesday, with those with the broadest shoulders having to shoulder a heavier burden.

Several advisers said property-owning clients were concerned about potential increases in capital gains tax, given that Labour is unlikely to raise national insurance, income tax or value-added tax in the run-up to the July general election.

Tim Stobold, a partner at accounting firm Moore Kingston Smith, said inquiries about asset sales have skyrocketed since the election, amid concerns about higher taxes, and he called it a frenzy.

Capital gains taxes on assets such as businesses, second homes and stocks are now 10% to 28% lower than the 20% to 45% tax levied on current income.

Miles Dean, Anderson’s partner and head of international tax, said clients holding property, company shares and cryptocurrency assets have been asking him to sell those assets and pay tax at their existing rates for at least 18 months since it became clear Labor would be in power.

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Nimesh Shah, chief executive of consultancy Blick Rotenberg, said the prime minister's statement had generated a huge number of queries in the past 24 hours.

Some clients who own businesses are pushing ahead with business sales transactions because they feel a sense of urgency to get it done, adds Ian Cook, a financial planner at Quilter Cheviot. Investors in equity portfolios are using their ability to sell and buy back shares to do what they call bed and breakfast.

Cook also said he knew several property investors who were having trouble liquidating their property portfolios. Most of them began selling assets as soon as the new government was confirmed. Cook warned that investment property owners who have not yet started selling will have a hard time completing sales before the October budget.

There is a lead time for both property owners and entrepreneurs. You don't put it on eBay and it disappears a week later, he said.

In addition to selling to outside buyers, advisers reported that clients were disposing of assets in other ways, such as selling to family trusts or gifting assets to younger generations. The latter mechanism was also used by those concerned about changes to the estate tax system, such as capping or eliminating certain tax reliefs.

Claire Munro, a tax adviser at Weatherbys Private Bank, said clients had clearly expressed concern about the changes to capital gains tax and inheritance tax, which had prompted some to take action.

But she cautioned that there are risks to making short-term selling decisions, including the risk that rumors about tax changes don't turn out to be true, or that you could miss out on potential growth by holding onto your assets for the long term.

Stobold agreed that some people were losing their sense and considering accelerating the sale of assets they had intended to hold for at least the next decade. He added that if CGT rumours were allowed to spread, the government would be in a position to raise taxes.

Mike Hodges, a partner at accounting firm Saffery, said overall, uncertainty doesn't help businesses and their owners.

He said that forcing people to act in a hurry was not the best way to create trust and stability in the tax system and encourage people to invest. “We have two months until the budget and we don’t want to create a boycott mentality.

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