Capital Gains Tax under Labour: preparing for a hike

Speculation is rife that Labour, if elected, will increase Capital Gains Tax ('CGT'). Their manifesto is silent on the subject and concern has been fuelled by Sir Keir Starmer's chief of staff 'liking' a post stating that doing so would be 'politically wise'.

Rachel Reeves has said that Labour has 'no plans' to increase CGT.  However, plans change, and no plans can quickly become plans, when you're a government in need of revenue. CGT is an obvious target for Labour, as it is often seen as a tax on the wealthy, paid by a small percentage of the population. As far as tax increases go, therefore, it should not be overly unpopular with the majority of the electorate, provided that it does not apply to the sale of a main residence, which Keir Starmer has categorically ruled out.

It's worth bearing in mind that, if Labour were to form a plan to increase CGT, it would be in their interests to delay an announcement for as long as possible, to prevent taxpayers from taking measures to 'lock in' the current rates. To this end, they may not wait until 6 April to bring this change into effect – George Osborne increased CGT from 18% to 28% effective from 23 June 2010, the day after the emergency budget.

With this in mind, anyone with assets standing at a gain may be considering what steps they can take to mitigate their tax exposure in the event of a surprise rate increase.  There are a number of strategies that are available, all of which centre around triggering a disposal that is taxed at the current rates.  

• Sell: The most straightforward approach is to sell the investment now, which will ensure that the gain is taxed at current rates. However, this may not be attractive to anyone wishing to retain an investment.  Whilst the asset could be re-acquired, it's important not to fall afoul of the 'bed and breakfasting' rules, that treat you as having bought back the investment at the original cost without realising the gain, unless 30 days have passed since the disposal.
• Uncompleted contracts: In cases where it is not possible to complete a sale straight away, an unconditional contract can bring forward the date of disposal for CGT purposes to the date the contract is made.  
• Forward sale strategies: It can also be possible to rebase assets by using forward contracts - agreeing to sell an asset to a counterparty at a specific price on a specified date - and call options, giving the counterparty the right, but not an obligation, to buy an asset at a predetermined price on or prior to an agreed date.  The transaction can be structured to allow assets to be repurchased.
• Transfer to a fund: A taxable gain will be triggered by transferring an investment to a collective investment scheme such as an Open Ended Investment Company or an Authorised Unit Trust.  The fund can act as a tax 'wrapper', deferring future capital gains.
• Transfer to a trust: Transferring an asset to the trustees of a trust will be treated as a disposal which triggers CGT at the prevailing rates, thereby rebasing the asset (unless Hold-over-Relief is claimed). The other tax implications of this will need to be carefully considered, taking into account factors such as domicile status, the location of the asset and the residence of the trustees.

Ultimately, the best approach will depend on the circumstances and the assets in question.