With the Labour party eyeing a victory in the upcoming general election, business owners and high-net-worth individuals must urgently consider their tax planning strategies. Labour's plans for significant changes to capital gains tax (CGT) and inheritance tax are more likely than ever to come into play, potentially leading to increased tax burdens.
Labour plans to present a range of options to the Office for Budget Responsibility (OBR) for analysis, with HM Revenue and Customs (HMRC) preparing figures on these options. Proposals include consulting on radical changes to agricultural land and business reliefs, potentially launching this autumn.
CGT Hike Could Raise Billions
Labour has been drafting options to increase CGT, a move that could generate up to £8 billion. The proposed changes would primarily target profits from the sale of second homes and business shares, currently taxed at a lower rate than regular income. This shift aims to unlock funds for public services, signalling a significant departure from the existing tax framework.
Overhaul of Inheritance Tax
In addition to CGT reforms, Labour is also considering major changes to inheritance tax. One proposal includes tightening the rules around tax-free gifting of money and assets, such as farmland. This could prevent the wealthy from avoiding taxes by passing on significant assets without incurring any tax liabilities. The combined effect of CGT and inheritance tax reforms could raise up to £10 billion, according to documents seen by the Guardian.
Implications for Business Owners
Business owners should be particularly vigilant. Current inheritance tax reliefs on agricultural land and family businesses might be scrapped or significantly limited. One example quoted was that the Labour party is contemplating capping the relief at £500,000 per person, which could substantially increase the tax liabilities for those passing on valuable assets. Without prompt tax planning, these changes could lead to unexpected financial burdens.
Labour's Fiscal Credibility and Public Service Investment
A senior Labour source highlighted the party’s approach: “We are starting from ground zero with our public services and infrastructure. We have to show we are serious about borrowing and raising revenue from taxes if investors are going to walk in step with us. These measures are part of unlocking wealth and putting it to work.”
Another senior party source added, “We have to show we are credible when it comes to transforming the country. Fiscal credibility means reforming tax as well as prudent borrowing.”
Need for Immediate Action
Given the high likelihood of these tax changes under a Labour government, it is crucial for business owners and individuals with substantial assets to consult with tax advisors immediately. Reviewing and potentially restructuring their financial affairs now could mitigate the impact of the proposed tax hikes. Waiting until after the election could result in missed opportunities for more favourable tax treatments under the current regime.
With Labour poised to implement these significant tax reforms, proactive tax planning has never been more critical. Business owners and high-net-worth individuals must act swiftly to safeguard their financial interests in light of the potential changes to CGT and inheritance tax.
How Can Qubic Help?
To navigate these potential changes, Qubic offers tailored tax planning services. Our expertise can help mitigate the impact of higher taxes and leverage current reliefs effectively. The window of opportunity to leverage current tax rates and reliefs is narrowing, and the time to act is now.
We understand that the uncertainty surrounding tax changes can be challenging, and we are here to help you.
For more information on our tax planning services and to discuss your options with one of our team, simply click the link below:
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Call: 0191 232 2001
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