Over two thirds (69%) of UK independent financial advisers believe clients will hold investments longer now to defer paying higher capital gains tax (CGT).
This is according to research by savings platform Flagstone.
Chancellor Rachel Reeves raised CGT rates in the Autumn Budget (30 October)
She confirmed she will increase the lower rate of CGT from 10% to 18% and the higher rate from 20% to 24% with immediate effect.
Reeves said this would be while maintaining the rates of CGT on residential property at 18% and 24%.
She said this means the UK will still have the lowest capital gains tax rate of any European G7 economy.
Under a fifth (17%) of IFAs believe clients will allocate more to cash or sell off investments and switch to cash.
Additionally, 34% of IFAs in separate research by Flagstone said customers expect to invest less now or in the future as a result of the CGT change.
The vast majority (88%) of IFAs also predict a base-rate cut when the Monetary Policy Committee (MPC) meets on Thursday 7 November.
Ahead of the last base rate vote in September, the majority of respondents correctly predicted a hold.
Flagstone chief executinve Simon Merchant said: “A CGT increase had been signposted for many months. But it will have taken many investors – and their advisers – by surprise that the Treasury decided against delaying the hike until the new tax year.
“Investors must now choose which investments to keep and which to divest, to minimise the impact of higher CGT liability further down the line.
“Most advisers expect clients to hang tight. But, if the signals are correct, while holding stocks longer defers CGT liability, this will only delay the returns.
“Investors exiting investments would be wise to consider the competitive risk-adjusted returns they can enjoy from savings while rates remain high.
“Clients for whom investing has lost its appeal may be heartened to see the dozens of Fixed Term rates still available that exceed inflation by as much as 2.5 – 3%.”
In order to obtain these results, Flagstone canvassed the opinions of 93 UK financial advisers and wealth managers from 21-27 October 2024.
Sorry am I living in a parallel universe. The effect of this budget will be to increase interest rates not cut them. Also by reducing the CGT exemption and increasing the tax rate, this only encourages day trading and short selling. It provides no incentive whatsoever to hold investments for the long term.
If this is Reeves’s grand plan to gain access to peoples wealth, then God help us all.
Before her budget, Reeves said that those with the broadest (financial) shoulders would bear the biggest share of additional taxes. Yet, come the day, what she actually announced was an 80% increase in the rate of CGT for basic rate tax payers yet one of only 12% for higher rate tax payers. Can anyone believe anything that this government says?
That aside, holding onto investments for longer so as to defer triggering a chargeable event for CGT seems such an obvious strategy as to be hardly worth mentioning. Partial drawdowns (where possible) without overstepping one’s £3,000 exemption allowance is also a natural thing to do.
Unless I’ve missed something, the CGT Allowance remains unchanged. It was Hunt who reduced it from £12,300 to £6,000 from 6 April 2023 and to £3,000 from 6 April 2024.
Once more Julian – right on target. But the (now miserly) £3k allowance is not to be sneezed at. You can transfer some of the asset to your spouse tax free – that then gives you £6k before CGT tax. So doing it each year until there is a change of government in about 15 years’ time who presumably would reverse some of these provisions. So £90k over the period! But why haven’t people put their investments into ISAs? Are these going to be a target for this innumerate government? Direct Property? Who would be daft enough to invest in that?