Jeremy's Blog 6th September 2024: Keeping Tax in Perspective

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 5th September 2024

Across the UK, concerned and uncertain clients are putting anxious questions to valuers and other advisers, questions requiring information that is not available and requiring insights not given to mortals.

The common question across the UK is what should be done before the Budget of 30th October – what might the new Chancellor do then? The three months forward notice and the government’s continued efforts to paint a bleak picture lead to fevered speculation in a vacuum of knowledge. Rumours magnify guesswork in the echo chamber of gossip, only becoming more intense as the weeks go by. Giving practical advice with perspective becomes harder.

The apparent commitments not to raise rates for the main taxes or on “working people” puts stress on what those words might mean. A sector founded on low yielding and illiquid capital assets inevitably focusses on capital taxes – but it should be remembered that there are other taxes and other aspects of the main taxes than their rates.

We have no knowledge of what Rachel Reeves will do – indeed, at eight weeks out from the Budget, many of these decisions will not have been taken, even if options are being worked on and tested. We have yet to see what her strategy – if events allow one – might be. Is it to reassure markets and then borrow for infrastructure and growth? Does it simply remain on controlling public finances? Will tax changes be designed with business needs in mind – even then, will the needs of small and unincorporated businesses be recognised?

Changes may be more complex than is now discussed. As one investor has commented on increasing CGT rates: “It doesn’t take a masters in finance to work out that if you significantly reduce the value on an exit of a successful investment, then you’re going to change people’s appetite to take risk.” (Bloomberg, 4th September 2024) However, history shows that decisions about CGT rates are integrally related with decisions about assessment and reliefs, with base dates, indexation, tapers, business cessation and so on. Increasing CGT and wanting development land that pays for its infrastructure may be conflicting goals.

We do know the present rules for capital taxes. Broadly, they are as benign as they have been for decades (though holiday let disposals would now need to be on commercial terms to have business reliefs from CGT). If there are sensible decisions that have CGT or IHT effects, the Budget date gives a good counter-answer to procrastination, however human that might be. Just as with any other decision, such as selling grain forward, the decision can only be made on the facts known – recognising that deferring until after the Budget date brings the risk that tax treatment might change adversely.

Of course, the passing weeks shorten the time for taking those decisions and acting on them, that pressure adding to the risks of a bad decision. Anxieties about tax should not precipitate a client into a bad decision without other merits.

After all the government’s early effort on planning and energy infrastructure and with its harder work of the autumn now starting, the Budget may begin to clarify its character, whether it really brings change or cleaves to caution. Will it act effectively beyond planning to achieve growth or settle for managed decline? Will other policies support or hinder growth? Does anxiety about financial markets and possible fear of being an accidental second Liz Truss follow through from the caution of its election campaign?

Whatever the answers, we have to give practical advice to clients in their own particular circumstances within a very much wider matrix of concerns than just tax.