Is a Wealth Tax on the way that could spell bad news for investors and entrepreneurs?
Rumours are rife that Capital Gains Tax rates could be changed to help foot the bill for the emergency financial measures brought in during the COVID-19 pandemic.
This follows Chancellor Rishi Sunaks announcement of a review of CGT and its reliefs — and could spell bad news for investors, small firms and homeowners warns Jarrovian Wealth.
In a letter to the Office for Tax Simplification, the Chancellor said he was particularly interested in any proposals the OTS has on the regime of allowances, exemptions, reliefs and the treatment of losses with CGT, and the interaction of how gains are taxed compared to other types of income.
Jarrovian Wealth say these reliefs are exactly what investors and small firms need to encourage them to take the leap of faith and set up new ventures to keep the economy firing. Capital Gains Tax rates are lower than other taxes, charged from 10% to 28%, but there is the prospect they could be brought in line with income tax - creating a wealth tax for many of those already paying top rate taxes.
This would be a huge further blow for investors and entrepreneurs, coming hot on the heels of Entrepreneurs Relief being slashed from £10million to £1 million, says Adam Young, a founding Director of Jarrovian Wealth.
The relief, providing a lower rate of CGT at 10%, is on shaky ground and at risk of being withdrawn. While the Treasury has said it is standard to review taxes and reliefs regularly, the current CGT one is raising alarm bells. The Government desperately needs to find ways to rake in some money to cover the vast costs of the Coronavirus pandemic and ease the groaning public purse.
Whatever the review decides later this year, from a complete overhaul of CGT to ditching the £12,300 annual exempt amount, it will affect share scheme arrangements such as the Enterprise Management Incentive that secures Entrepreneurs Relief and a 10% CGT on £1million. It will also impact the Company Share Option Plan, which allows open companies to award up to £30,000 worth of shares at a fixed price with no Income Tax or National Insurance contributions, and with CGT at the current low rates on profits made when they are sold. It is already questionable as to whether EMIs are still valid for participants who have been furloughed as they will not have been able to meet the minimum 25 hour working week requirement throughout the option period, and this is a further potential disincentive to growing businesses to use their equity as currency to attract and retain the staff they need in order to grow.
Young adds: These reliefs are vital to help encourage the entrepreneurial spirit and constant meddling does nothing but cause confusion and stifle investment. Small businesses seeking to scale up are the backbone of the UK economy and will be crucial in helping to get the country back on its feet, creating jobs to replace the huge numbers lost due to the crisis. Let's hope the Chancellor realises this too, and his review is nothing more than that and he doesn't tax investors and entrepreneurs out of making their move.
About Jarrovian Wealth
JW was established in 2017. Our team of skilled and experienced financial planners does more than just look after the numbers for clients around pensions, investments and protection – both personal and business. We get to know and understand the deeper motivations and aspirations, so we can challenge people to think bigger. While knowing they are in a safe pair of hands building up a secure financial future. We may be one of the newer players, but we are packed with experience as our clients have been trusting our experts with their financial lives for over 30 years. We don't just focus on individuals we incubate businesses too helping entrepreneurs and those up and running to get ventures off the ground, stay on track and plan the perfect exit strategy, so owners can focus on the day job of running the show. JW's headquarters are in London.
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PAUL SMITH ASSOCIATES
3rd August 2020