Blackfinch Group

Investment specialists working towards a more sustainable future

Blackfinch Group
Blackfinch Group

Following the recent news around a potential increase in capital gains tax (CGT), we spoke to Dominique Butters, our Executive Business Development Manager, about the implications.

What do the proposals from the Government involve?

The Government’s Office of Tax Simplification (OTS) has proposed the following:

  1. Aligning CGT rates with Income Tax rates. In some cases, this would double a client’s CGT bill.
  2. Reduce the annual CGT allowance – the tax-free allowance each year, currently set at £12,300. This means that more clients would be liable for CGT than now. The OTS estimate is that this would triple the number of people having to pay CGT each year.
  3. Make CGT payable by heirs who inherit assets, if they didn’t pay Inheritance Tax (IHT) on the assets. Currently, heirs receive assets on death at the value at the date of death. They only pay CGT on gains made from the date of death to the date of sale. The proposal is that they would be taxed based on the original value to the date of sale.
  4. Only receive a reduced CGT rate if the sale of a business coincides with retirement. In the last Budget, the Government reduced the lifetime limit, when selling a business, from £10m to just £1m, to receive the reduced CGT tax rate of 10%. Now the proposal is to perhaps only receive this reduced rate if the business sales coincides with retirement, so linking to pension retirement ages.

What could the increase in CGT mean for clients?

If all the proposals were accepted and implemented by the Government (and they don’t have to accept and implement any of them) then the amount of CGT would increase dramatically for clients who’ve made gains on assets when they sell them.

How could the increase in CGT effect the economy?

The biggest benefit to the Government is that it will raise capital gains receipts dramatically, adding £14bn for the Exchequer. As far as the economy is concerned the worry is that wealthy clients could flee the country to avoid having to pay the tax.

What should advisers consider with clients in relation to this?

Advisers can look to discuss this with each of their clients and decide on the best course of action for their personal situation. For instance, does a client need to sell assets/realise gains this tax year before any potential changes arise? Of course, the danger here is that these proposals and suggestions are just that… the Government may not make any changes. Or, it may only introduce some changes which aren’t as seemingly onerous as the full OTS recommendations. In that scenario clients would have been better off holding their assets and not selling them and realising gains this tax year! Definitely a discussion point though!

What impact could this have on Enterprise Investment Schemes (EISs)?

Well, it could certainly make them all the more appealing! With an EIS, clients can defer any CGT liability. So, if the CGT rate goes up to 40% (or even 45%) then an EIS could become even more powerful for future tax planning. Of course, this also helps UK PLC and the Exchequer as money invested into EIS companies naturally creates taxes and jobs, with it supporting small, high growth firms. The money is used to help fund these companies’ growth so that they have a better chance of success. This is why the Government introduced these schemes back in the mid-nineties!

What does Blackfinch offer as an EIS provider?

Blackfinch has the Blackfinch Ventures EIS Portfolios. These invest across a diversified portfolio of ten+ companies which operate in the technology sector. They’re young, exciting companies which have the potential to disrupt huge £1bn pound industries. Many fledging technology firms have the potential to be game changers, transforming global markets with innovative solutions. We look to create significant upside potential for investors by working with high-calibre businesses led by brilliant people.

Capital at risk. To find out more about the Blackfinch Ventures EIS Portfolios click here

To discuss any of your clients’ CGT concerns, speak to one of our experienced BDMs who will be happy to talk through EIS as a potential option for your clients or email [email protected]