Investment firms have welcomed reports that John Healey has ruled out a “damaging” capital gains tax raid at the Autumn Budget, after warnings the move could harm the domestic economy and weigh on Britain’s appeal to investors.
The Chancellor has decided against raising capital gains tax (CGT) at the Autumn Budget next week, City AM understands, despite pressure from some members of the Cabinet to lift the levy from its current level of 24 per cent for higher rate tax payers.
Senior allies, including Wes Streeting and Louise Haigh, were pressing the Chancellor to raise the charge on the sale of second homes, shares and other assets in order to raise revenue.
Investors and wealth management firms said reports Healey had ruled out a rise would provide comfort to investors and prevent damaging speculation in advance of the Budget next week. Fears of a higher levy triggered a rush to sell assets in the run up to the last two Budgets.
Rob Morgan, Chief Investment Analyst at Charles Stanley Direct, said: “Healey ruling out a further increase to capital gains tax will provide some reassurance to business owners and investors ahead of the Autumn Budget.
“The decision suggests the Treasury is increasingly focused on the risks of behavioural change rather than just the headline rate.”
Exodus of the wealthy
Investors and business groups had warned that a hike to the levy could cause wealthy Brits to leave the UK or stall the sale of assets which would lead to a fall in tax receipts. Increases could ultimately hurt the Exchequer as the high rate puts people off selling assets such as businesses, shares and second homes in a bid to avoid the tax.
Isabella Galliers-Pratt, Senior Investment Director at Rathbones, said the wealth manager has dealt with an influx of clients in recent weeks who were “questioning whether to bring forward asset sales or revisit their investment plans ahead of the Budget”.
This was echoed by Rachel Vahey, head of personal finance at AJ Bell, who said not raising the rate is a “sensible move from a tax revenue perspective”.
Hinder investment
Investment platforms have also welcomed the decision, arguing it sends “a much-needed positive signal” to Brits who have previously shunned the stock market.
“Investing for the long term requires confidence that you understand the rules you’re investing under. But over the past decade, investors have faced repeated changes to investment taxes and rules,” said Michael Healy, chief executive of IG Consumer.
“It’s not just changes that come into force that create uncertainty, investors also have to navigate proposals that are subsequently changed or dropped, let alone those leaked ahead of Budgets.”
He urged the Chancellor to go further in boosting investor confidence by committing to a “stable tax regime” without constant policy change and upheaval in the Autumn Budgets.
Others have said the decision will boost economic competitiveness, preventing the “wrong message to entrepreneurs, business owners and investors” being sent.
UK Private Capital, the industry body for private equity and venture capital, said the Chancellor was “absolutely right” to rule out the move.
“Raising capital gains tax would send precisely the wrong signal to investors, weakening the UK’s international competitiveness and putting growth, jobs and investment at risk,” Michael Moore, the group’s chief executive said.
“To support economic growth across the UK, this Budget must be pro-investment. The Chancellor can help by incentivising entrepreneurs to reinvest capital and share their expertise across the wider ecosystem.
Other routes to consider
News that Healey will not raise CGT follows reports he will not raise the levy to the same levels as income tax.
But industry figures have warned that the Chancellor could possibly implement other “tweaks” to the regime in order to raise funds.
Vahey noted that he could change the annual allowance again or cut it altogether but cautioned it could wreck the government’s push to encourage domestic investment.
“It would be miserable news for investors and counterintuitive for a government that wants to boost retail investing in the UK,” she said.
“It would run the risk of putting people off investing at all… It’s not just the prospect of the tax, but all the extra admin they would need to do any time they sell an investment. Rebalancing their portfolio could become a huge and expensive headache.
Another change that has also previously been floated, including by the now extinct Office of Tax Simplification, is to make CGT payable on death.