Labour and Conservative manifestos and capital gains tax

Last week saw the main political parties publish their manifestos ahead of the General Election on 4 July 2024.

In this blog we review comments made by the Conservatives and Labour in respect of capital gains tax (CGT).

What the Conservatives say about CGT

The Conservative manifesto made the following comments regarding CGT:

• No increase to CGT
• Retaining Principle Private Residence Relief for the disposal of an individual’s main home; and
• Introducing a two-year temporary capital gains relief where landlords sell their property to existing tenants

What Labour says about CGT

Labour’s manifesto was silent on their position in respect of CGT rates. This is in contrast to confirming no proposed increases to corporate tax, income tax, NIC (national insurance contributions) and VAT.

Labour’s only mention of capital gains referred to stopping performance related awards (carried interest) being treated as capital gains for private equity executives. Shadow chancellor, Rachel Reeves has suggested this would be ‘consulted’ on in advance and that capital treatment would be preserved where executives put their own capital at risk.

Interpreting Labour’s position on CGT

Labour have not excluded the possibility of increasing CGT rates. Given the manifesto silence and other refusals to rule out any increases it remains a definite possibility. Ordinarily, CGT rates are effective for the whole of a tax year. However, mid-year CGT rates have been introduced historically including previously in 2010 by the Conservative coalition government.

If any rate increase is introduced by Labour, should they form the next Government, we would not expect it to be effective until after a post-election Budget. Rachel Reeves has said there would be no Budget until September at the earliest. This aligns with Labour’s manifesto commentary to not carry out a fiscal event without OBR forecast input in advance. Under normal circumstances the OBR require 10 weeks’ notice. Therefore, if Labour do come to power, we can likely expect no budget before mid-September at the earliest and more likely late September or early October.

Pre-election actions to consider

Formal advice should be sought to review and consider individual’s bespoke circumstances before taking action.

Individuals with assets or investments currently standing at material gains, or who are considering business exits in the short to medium term, could consider accelerating disposals to crystalise gains at current tax rates where appropriate in their individual circumstances.

Potential actions might include:

• Realising investments – selling investment assets now to realise capital gains at current rates, subject to managing any reinvestment accordingly (including the UK’s bed and breakfasting rules)
• Property transfers – if appropriate to personal circumstances individuals can transfer property into trust relatively quickly that can trigger capital gains at current rates, subject to potential reliefs available and wider tax considerations
• Business owners – carrying out a management buy-out (MBO) to crystallise gains in the near term. Generally, MBO’s can be actioned relatively quickly compared to third party trade sales. Also, whilst MBOs realise value for business owners up front, there is the potential for owners to retain future upside potential

Non-dom individuals will need to think more carefully about any action to take given the ongoing uncertainty on proposed reforms announced at the Spring Budget in March 2024. We have provided separate commentary on this in other blogs and will provide additional analysis on potential areas for clients to consider over the coming weeks.

We have significant experience across all taxes and in corporate finance to advise clients of their options and support them in any potential actions required.