With much talk of the capital gains tax rates increasing in the October budget, we take a look back and also consider the options which may be available in future if now is not the right time to sell.

Before April 2008, individuals were able to claim indexation allowance on the cost of any assets sold, this mechanism increased the cost of the asset in line with inflation up to April 1998, resulting in a smaller capital gain subject to tax. For companies indexation allowance continued until December 2017.

Taper relief was then made available to individuals from April 1998 which helped to compensate for the pausing of indexation allowance. The amount the capital gain reduced by, depended upon the nature of the asset and length of ownership. By April 2008, taper relief and indexation allowance disappeared for individuals (companies have been warned).

We now have capital gains tax rates for specific asset types and then standard rates which depend upon the level of income and capital gain when aggregated together. The annual exemption is now a trivial £3,000, any capital gain above this is then subject to capital gains tax unless capital losses were crystallised in earlier years and unused.

If the mechanism of taxing remains the same post-Budget but the tax rates increase, one simple way to push gains into lower tax brackets is to make a personal pension contribution. This may not be possible for individuals with low earnings and those whose pension annual allowance is tapered to the basic level. It’s worth noting that Gift Aid donations to charities have the same effect on the tax thresholds as pension contributions.

If you are in no mood to sell up now and are forced to sell in a high tax environment at a later date. Here are some ways in which to defer a capital gain:

• Invest through the Enterprise Investment Scheme.
• If it’s a qualifying business asset and you are looking to reinvest, consider rollover relief.
• Those considering passing assets to the next generation, the two gift relief mechanisms may be possible.
• If you are considering a decent stint overseas, you may be able to benefit from no UK capital gains tax if you are not considered temporary non-resident (if not, then you will be taxed in the year of re-entry to the UK). It is advisable to obtain advice in the new jurisdiction and review any tax treaty agreed between the two countries. UK property and certain business assets are taxable in the UK irrespective of residence.

Some of the above mechanics simply suspends the capital gain waiting to be crystallised at a later date, as the benefit of the effect of inflation eats into the capital gain. Others pass the original cost onto its recipients, here the cost to be offset against eventual sale proceeds reducing as inflation makes its impact.

For those who hold assets with deferred gains for the long-term, these will generally die with them. Therefore if the asset isn’t caught by the 40% Inheritance Tax trap this can be an effective strategy. The recipient then benefits from the probate value when it comes to selling.

If you’d like to consider your options before the 30th October Budget, please get in touch.