Although Sir Keir Starmer has dismissed extreme rate hikes to Capital Gains Tax (CGT) – a figure as high as 39% had been rumoured in the media – some moderate increases, particularly on shares and assets, remain likely.
Chancellor Rachel Reeves has already indicated that CGT on second homes and buy-to-let (BTL) properties will remain untouched, signalling the Government’s awareness of sensitive market sectors like real estate.
LV= Wealth and Wellbeing data has revealed potential modifications to CGT could prompt significant changes in personal investment strategies, with almost a third (31%) of UK adults considering reviewing their portfolios if it rises.
Younger generations were most likely to report a willingness to review portfolios in light of CGT changes, but the trend still holds true for the older generations, with one in five Baby Boomers (those aged between 60 and 78) and the Silent Generation (people aged 79 and above) expressing a strong inclination to review their investments.
We know advisers play a crucial role in helping clients manage their investments during uncertain periods.
According to the latest LV= Wealth and Wellbeing research, 46% of people already working with an adviser said they are more likely to act proactively to reassess their portfolios, compared to just 17% of those who haven’t sought any professional guidance.
As the Budget draws nearer, advisers are experiencing an influx of calls and client queries, along with more requests for portfolio reviews.
Understanding the historical context of CGT is essential for advisers as they prepare clients for potential changes.
Over the last two decades, CGT has undergone significant reforms that have shaped the investment landscape, from Gordon Brown’s taper relief in 1998 to George Osborne’s rate adjustments.
These reforms have influenced investor behaviour, particularly in relation to tax planning and portfolio diversification.
If, as expected, CGT increases, it will likely prompt a wave of fresh reassessments, especially among those nearing retirement or holding substantial assets in shares.
Tax-efficient options, such as managed pension funds and bonds, may provide a buffer against higher CGT rates with advisers preparing for an uptick in requests for both options.
Whatever policy announcements come to pass following the announcement next week, financial advisers will have a vital role to play in guiding clients through these changes, helping them make informed decisions in what could be an emotionally charged market environment.
Gwen Haggo is savings and retirement sales director at LV=
