Financial advisors expect surge to re-align investment portfolios ahead of expected capital gains tax hike in UK after general election

News - Latest

Written by Ray Clancy

Thursday, 22 April 2010 08:40

Private banks are positioning for a surge in new clients and a realignment of portfolios by existing customers as Britain’s wealthy prepare themselves for an expected hike in capital gains tax (CGT), it is claimed.

Britain’s rate of CGT, applied to realised profits from asset sales, currently stands at 18% and many analysts expect it to increase after next m month’s general election whoever is in power.

Wealthier people are also contending with the new top rate of income tax that was recently increased to 50% and advisers to Britain’s rich say clients are starting to take pre-emptive action.

A rise in business sales by entrepreneurs wanting to realise their wealth before a hike in tax rates could be good news for private banks that rely on sales of family businesses or public listings for a flow of newly enriched clients.

‘We’re seeing people who were thinking of holding on a couple of years and selling their businesses actually doing it now because they are afraid the headline rate of CGT is going up,’ said Ronnie Ludwig, a partner in the private client team at accountants Saffery Champness.

Some advisers say selling of assets started before the last budget in March when many wrongly predicted the government would raise CGT. ‘It didn’t happen then, but client concerns have persisted and we have seen a number of cases where valuable assets were sold just before the financial year end in order to obtain certainty,’ said Louise Somerset, tax director at RBC Wealth Management, the private banking arm of Royal Bank of Canada.

The Liberal Democrats have pledged in their election manifesto to bring CGT into line with income tax, though the two main parties, Labour and the Conservatives, have not yet set out explicit plans for the tax.

However, opinion polls indicate there may be no outright winner in the election, leading to a coalition government in which the Liberal Democrats are able to influence policy.

‘Most of our clients are waiting to find out the results of the election prior to selling assets, but we expect that if there is a hung parliament, they’ll move relatively fast to get their affairs in order,’ Somerset said.

Meanwhile, some estate agents report increased activity among property investors fearful of an increase in CGT. ‘I’ve had conversations with some very old clients who are a lot sharper than the majority who are exploring the possibilities of potential increases to CGT,’ said Edward Prickett of London agent John D Wood.