Burnham tax plans spark investor rush to bank capital gains
Entrepreneurs and savers are rushing to bring forward the sale of their businesses or take profit on investments in anticipation of Andy Burnham’s rumoured plans to fund his ambitious devolution agenda by equalising capital gains tax with income tax.
Tax and financial advisers reported a sharp uptick in client enquiries on the likely Prime Minister’s well-trailed wealth grab, with founders looking to speed up sale processes and high-net-worth individuals crystallising gains on longstanding investments.
“We are increasingly speaking to founders who are nervous about what a change of Prime Minister could mean for capital gains tax and their businesses,” Anthony Whatling, managing director at Alvarez & Marsal Tax, said.
“Where sales are already under way, many are looking to accelerate completion amid concerns that changes could be announced in the first Budget of a new government. Some are also considering crystallising gains under the current regime, although that carries obvious risks if a transaction does not ultimately complete.”
Several of Burnham’s inner circle have proposed bringing the top rate of capital gains tax in line with income tax in a move they say will help incentivise work by taxing wealth at a similar rate.
Both Louise Haigh – a close ally of Burnham’s who spearheaded his campaign to win the Makerfield by-election – and Chancellor candidate Wes Streeting have endorsed the move, with the latter branding it a “wealth tax that works”.
Haigh included the measure in an essay last week as one of several economic reforms she argued would bring about a “fundamental redesign” of Britain’s tax system.
The wealth grab was “central to restoring confidence” in a system that currently favours asset-owners over those on an income, she wrote, adding: “It would shift the taxation burden away from punishing work, and towards unproductive capital accumulation, which does little to grow the everyday economy.”
Under the changes proposed by Haigh and Streeting, capital gains tax would be levied at 45 per cent – the same as the top rate of income tax – as opposed to its current rate of 24 per cent for top-rate taxpayers. Doing so would make Britain’s capital gains tax the highest of any developed economy, outstripping Denmark which applies the levy of 42 per cent to any gains worth more than DKK 158,800 (£18,000).
Capital gains tax hikes backfire
The momentum behind the proposals – which are also backed by Burnham’s policy svengalis Miatta Fahnbulleh and Neal Lawson – has also triggered a wave of investors to bank any gains they might be sitting on ahead of any crackdown.
“We are seeing a lot of clients who might have realised gains in the next couple of years, looking to bring forward those plans,” said Ed Wood, financial planning director at Rathbones. “In a lot of cases that’s kind of a no-lose option.”
Proponents of the move argue it could net an additional £14bn for the Exchequer. But even small changes in the tax, which is levied on shares in both public and private companies, can set off vast behavioural responses, with investors often delaying selling shares in a high-tax environment, leading to a lower overall tax take.
In her maiden budget, Rachel Reeves hiked the top rate of capital gains tax from 21 per cent to 24 per cent, in a move the Chancellor said kept the UK with the lowest “rate of any European G7 economy”. But the clampdown – which itself followed a similar reduction of tax-free capital gains allowances by the previous Conservative administration – backfired as taxpayers chose not to realise gains and overall receipts fell.
Robert Salter, a director at Blick Rothenberg, told CityAM that there was “certainly some potential interest” from entrepreneurs looking to speed up sale processes that were already under way to get ahead of any raid.
“There is also some discussions about potentially becoming non-UK tax resident to avoid – or at least minimise – their liability to UK CGT,” he added. “This might be the case, for example, if they are expecting to have a big corporate transaction – business sale – in the foreseeable future. In this regard, there have already been some departures from the UK for various tax-related factors over the last two years or so.”