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Rachel Reeves outlines likelihood of tax rises in October
Rachel Reeves is poised to unveil her “aggressive, tax-raising agenda”, and anyone thinking of selling assets would do well to do sooner rather than later, a financial advisor has warned.
The Chancellor is already shaping up for her Autumn financial statement on October 30, during which she is likely to confirm measures including Labour’s manifesto commitment to impose VAT on private schools.
Ms Reeves argues her hardline approach is justified by a need to claw back what she had identified as a £20billion black hole in the UK’s finances.
However, Mark Ashbridge, managing director of Ashbridge Partners, said: “The government’s tax raising agenda means anyone thinking of selling or transferring their assets should act now.
“For anyone with assets, whether it’s a business, property, shares or investments, and you are thinking of selling or transferring them, now is the time to act.”
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Chancellor of the Exchequer Rachel Reeves arrives in Downing Street (Image: Wiktor Szymanowicz/Future Publis)
Ms Reeves had already demonstrated her intention to follow through on her election commitments and would probably be “more aggressive in her approach than we first envisaged”, Mr Ashbridge suggested.
He said: “For example, she has been quick to confirm that VAT at the full 20 percent will be added to the whole of private school fees, including boarding and despite earlier indications, the VAT introduction will commence from January 1, 2025.
“The Autumn statement is set for October 30 and those within the professional community are bracing themselves for what could be a significant shakeup of the tax system, beyond those identified as protection ‘for the working man’.”
In order to fill the aforementioned funding gap, she was likely to look at other taxes such as Capital Gains Tax (CGT), Business Property Relief (BPR), Annual Percentage Rates (APR) and even Inheritance Tax (IHT), Mr Ashbridge suggested.
He continued: “With these potential changes on the horizon, now is the time to make the asset transfers between generations or entities or consider bringing forward an asset sale to crystalise the tax treatment under the current regime.
Rachel Reeves and Prime Minister Sir Keir Starmer (Image: AFP via Getty Images)
“For some, this may trigger a CGT charge and particularly where an asset is being transferred rather than sold to a third party there may be a need for finance to fund the tax charge.”
“Increasing Capital Gains Tax will continue to ‘shake out’ business while Zombie’ businesses, operating on cheap debt, will likely find that their days are numbered.”
Higher costs of capital – whether for a business, property, shares or other assets, over the last two years would continue to shake ip the current business and entrepreneurial environment, which Mr Ashbridge said had been “wrapped in cotton wool for the last 17 years”.
He explained: “‘Zombie’ businesses which have been ticking along operating on cheap debt, not forced to have to make changes, will likely find that their days are numbered.
“They will either fold or be absorbed by other successful competitors and this will help unleash the productivity improvement that has been missing since 2008.
In addition, Ms Reeves had made in clear she planned to end tax breaks for the wealthy, including those with non-domiciliary status, of whom there are now 74,000 people in the UK, up from 68,900 in 2021-22.
Currently, non-doms are exempt for up to 15 years from paying UK tax on foreign income and capital gains – but from April 6, 2025, they will have to pay the same tax as everyone else in the UK, including on money earned overseas, capital gains tax, and inheritance tax on offshore trusts, after the first four years of moving to the UK – a measure introduced by the previous Tory government had introduced.
Private equity and buyout fund managers receiving a share of profits from asset sales called ‘carried interest’ will also be impacted by the planned capital gains tax hike.
Carried interest, increasingly prevalent in recent years, is taxed as a capital gain at 28 percent, rather than as an income, which is at top rate, 45 percent plus national insurance.
Mr Ashbridge said: “This is significant given that there are 2,550 private equity executives in the UK, making a total of £3.4bn in carried interest in 2020-21 according to data from law firm MacFarlanes.
“Most people in the UK have assets. It’s about timing and with the Government sending a clear message that next year will be ‘an end to tax breaks’ and ‘a crackdown on tax loopholes’ 2024 is the time to act on transferring or selling these.”