More than a contest for the leadership of the party has been triggered by the resignation of Sir Keir Starmer. It has brought back a debate on taxes — and business owners, directors and family members of the business who hold wealth should not be taking it lightly.
A fresh Prime Minister is likely to emerge in the coming months. New Prime Ministers typically come with new Chancellors. When a new Chancellor comes in, it’s often a new set of tax priorities. As yet nothing has been announced, but the discussion that is already under way in Westminster provides an early sign of where the next line of questioning will be directed.
Why This Matters Now
Significant changes to tax are normally planned for the Autumn Budget. However, political changes of guard tend to work in their favor, particularly when a new leader aims at making a swift start on their fiscal agenda.
The outlook for the quiet year is not good. Public finances are under strain, interest rates are high and the squeeze on public services and public infrastructure is not easing. The person who’s going to assume that role will be seeking for money – and it’s where governments look first: capital, wealth and high income earners.
The risk: When the business owner thinks “nothing’s changed yet”, he or she is taking actions that will only result in a response after the Budget. When a change is ratified it is too late to plan.
What’s Being Discussed
This is not official policy. It’s time to be familiar with all of it.
There have been several points made about implementing CGT which is closer to Income Tax; one of these was by contender for leadership, Wes Streeting, who said that gains from asset ownership should not be taxed at less severity than income from labour. The potential value of this type of alignment is estimated at £12-14bn per year. In isolation, policy groups around Labour have proposed something similar, without the reliefs for entrepreneurs who take real risk.
Wealth-based taxes: It is now back on the agenda to impose higher taxes on accumulated wealth, capital gains and on inheritances, all of which have been the standard items in the tax arsenal of any government that seeks to raise money without taking direct aim at income tax thresholds.
The 50% additional rate: There is also a resurgence of the concept of imposing a 50% income tax on the wealthy. There’s no formal process underway at this time, but it’s all the same, the topic is back on the table because the mood can change.
There are no guarantees here. As a business owner examines its status now, in the current climate of reliefs and rates, you have the opportunity to plan your business on your own time, instead of other people’s time!
Is there a way that CGT can still get moving?
In recent years CGT rates were restructured and Business Asset Disposal Relief has been restructured once. Now, the question is being asked by many advisers as to whether that was the end of the story or the beginning of it.
If you are considering transferring shares to family, you have long-term investments or you are looking to sell your business, then CGT likely has already been a key consideration. A move in rates, even a partial one will alter the numbers on the decisions that many business owners are actively working on right now.
The financial difference between this CGT treatment and a rate closer to income tax on an individual transaction, for a director who is planning an exit could amount to hundreds of thousands of pounds. This isn’t a rounding up or down — it’s the kind of number that makes or breaks a sale this year or later when things are tight.
The actual danger is the delay, not the policy.The true threat is the delay, not the policy.
No one can predict what the next Chancellor will do. No one should make anything up.
However, recent history is a good teacher. Three changes to Business Property Relief, Employee Ownership Trusts and the inheritance tax treatment of pension funds made the quickest progress from ‘unlikely’ to ‘law’, topping the list of changes most business owners were hoping to see.Three changes to Business Property Relief, Employee Ownership Trusts and the inheritance tax treatment of pension funds were the fastest to move from ‘unlikely’ to ‘law’, with the list being topped by changes most business owners were hoping to see. The trend is predictable: By the time a change is formally announced, the planning period has already become rather short.
The companies and households most suited to deal with whatever is to come are not the ones attempting to foretell the future. They have already checked out their layout, and they are prepared to relocate or they’ve just been informed that they are safe.
What To Do Now
As the political landscape stabilises, it’s a good time to review:
Are shareholders and succession structures still fit for purpose?
– exit planning and business sale planning — does your plan still work now?
Tax exposure on inheritance — especially for business and agricultural property relief
– Are trust and family wealth arrangements set up flexibly?
– Tax planning for capital gains on any transaction that is imminent or planned
None of these reviews is predicated on any knowledge of what a new Chancellor will do. They need to know their current position, in case the rules change.
How Morgan Reach Can Help
Tax change is not synonymous with political change. But it does produce the sort of uncertainty that will motivate people to plan ahead rather than react at the last minute.
Morgan Reach collaborates with business owners, directors and their professional advisers to create tax, succession and wealth strategies that will withstand the next twist in Westminster’s arm, including business succession planning, inheritance tax planning, trust and family wealth structuring, exit planning and business sales planning and Capital Gains Tax strategy.
Secure your assets, safeguard your legacy, and plan with peace of mind.
If you’d like an initial view on how a change of government could affect your business, your family, or your clients, get in touch with Morgan Reach today.
