The Daily Telegraph - Your Money
How to hide from the Budget tax grab
Some are already sheltering assets for fear of harsher charges, reports Harry Brennan
Anxious savers and property investors have started making moves to shield their wealth from tax rises, as the Government looks to cover the cost of the crisis.
Some have taken action in advance of the Budget on March 3, for fear new rules could come in overnight.
Chancellor Rishi Sunak faces a balancing act of plugging a £400bn black hole in the nation’s finances while steering the economy back to recovery.
Rumours of tax grabs are rife and include harsher capital gains and death duties and higher taxes for freelancers and businesses. Most believe bigger tax bills are inevitable, whether they come in right away or later in the year.
But what can people do right now to protect their wealth – and fast?
CGT is due on profits for investments held outside of an Isa or pension, or properties, watches, art, jewellery and collectibles. A simple way to cut tax bills is to transfer the “beneficial ownership” of the investment to your children, according to Chris Etherington of accountants RSM UK. This is a form of gifting, and wipes the tax slate clean. The gifter retains the legal title, but the asset remains in the family.
The idea is to shift investments and pay CGT now, avoiding a bigger charge later on. Other family members can still benefit from the investment, without you selling out completely.
Tax on investment profits has never been lower at 20pc or 28pc for additional residential properties. However, a report from the Government’s tax adviser suggested bringing CGT rates in line with income tax, at up to 45pc.
“We already have clients doing this even before they have seen what is in the Budget,” Mr Etherington said. “This is much faster than selling in the conventional way, which can take months for a property.”
Such a transfer could limit CGT bills in the long run and trigger the “sevenyear rule” that exempts gifts from 40pc inheritance tax if the gifter survives for at least seven years.
The transfer must be recorded by a “deed of gift” or “deed of transfer”. This can be drawn up by a solicitor for around £ 750 to £ 1,000 and be done in a matter of days, according to Ian Bond of law firm Thursfields.
“More complex arrangements involving property can take up to a couple of weeks. Protections against losing the money if your children divorce can also be included,” Mr Bond said. “Inquiries have ramped up ahead of the Budget,” he added. Individuals must also be sure partners or children play ball and don’t force them out of the house if arrangements turn sour. Gifters must also consider what would happen if their child died before them, were to fall into a coma or become bankrupt, he added. Second-home owners and “accidental landlords” might be better off transferring assets into a company structure, which offers a number of tax perks,
Mr Etherington said. This will trigger both stamp duty and CGT, but if the Chancellor extends the stamp duty holiday until June, as reported, there may be time to make a saving.
However, Mr Sunak is considering upping corporation tax. He is understood to believe this is one of the fairest ways to raise extra revenue.
Savers can also move cash or existing investments into tax-free Isas using a “Bed and Isa” transfer via their broker. This could trigger a taxable gain. It may also trigger a loss, which can be used to offset future CGT bills.
Both the standard £20,000 Isa allowance and the new £ 9,000 Junior Isa allowance are higher than ever, allowing a married couple with two children to shield almost £60,000 from the tax man each year.