The Notebook: Investors pile into ISAs ahead of touted capital gains tax raid
Where the City’s movers and shakers have their say. Today, it’s Myron Jobson, senior personal finance editor at Interactive Investor, with the Notebook pen
CGT raid spooks investors
‘Keep calm and carry on’ is the usual advice dished out by industry commentators (including yours truly) amid the usual flurry of noise and speculation leading up to a Budget or ‘fiscal event’.
However, amid rampant speculation that capital gains tax (CGT) is firmly in the sights of the government in the Halloween Budget, as it looks to plug a multi-billion-pound black hole in the public finances, the prevailing sentiment is to get your skates on to shield your returns from the clutches of the taxman.
This message has not been lost on customers of Interactive Investor (II). II recorded its busiest summer ever for Bed & ISA transactions, up 27 per cent between 1 June and 31 August 2024 compared to the same three-month period in 2023, and up 99 per cent compared to summer 2022.
The CGT regime has become less generous in recent years. The CGT allowance was cut from £12,300 to £6,000 at the start of the 2023/24 tax year and was then halved to £3,000 in April 2024.
There’s mounting speculation that the government will zero in on rate adjustments in the upcoming Budget, bringing them in line with income tax, which would mean that CGT liability for investors across the income spectrum would double – and then some for the highest earners.
If this occurs, additional rate taxpayers could face a tax charge of £21,150 on a £50,000 capital gain made by an investment held outside a tax wrapper like ISAs and SIPPs. This would be £11,750 more than the current tax liability under the existing CGT regime (£9,400).
Even those at the opposite end of the income spectrum would face a higher tax burden. If aligned with income tax, the CGT rate for basic rate taxpayers would rise from 10 per cent to 20 per cent, doubling the amount paid in tax above the £3,000 tax-free allowance. This translates to a CGT liability of £400 on capital gains of £5,000 (up from £200 under the current CGT regime).
Whether or not the Chancellor tweaks the rules, taking a proactive approach ensures you’re not leaving money on the table. By staying on top of your investments and understanding your tax liabilities, you can make more informed decisions that stand the test of time. It’s about being prepared – not just for what’s coming, but for managing your wealth effectively in any scenario.
Titanic shipyard sinks into administration
Shipbuilding company Harland and Wolff, which owns the Belfast shipyard that once built the Titanic be placed into administration for the second time in five years.
The company announced at the start of the week that it is insolvent – essentially where a company’s liabilities outweigh its assets and will appoint administrators – with insolvency practitioners Teneo are being lined up to act as administrator.
The firm said between 50-60 immediate redundancies are expected but said that staff employed at its four shipyards are not affected.
The announcement followed a full review of all group holdings which began in July.
National debt forecast to treble
The UK’s national debt is on course to treble over the next half a century, driven by mushrooming pressure from an ageing population, climate change and rising geopolitical tensions among others.
This is a stark claim made by Office for Budget Responsibility (OBR) in its recent Fiscal Risks and Sustainability report. It said without extra tax revenues or a return to post-war productivity levels, the public finances were not sustainable over the long term. Essentially, “something has got to give”.
The OBR says its base scenario is a national debt of 274 per cent of GDP in 2071, with risks from war, disease, cyber-conflict and trade tensions pushing that even higher.
ECB cuts again
The European Central Bank (ECB) has cut interest rates by 25 basis points to 3.5 per cent last week. Interestingly, unlike the previous cut in June, Thursday’s decision was unanimously decided and was taken in response to the cooling of inflation in the Eurozone, which fell to 2.2 per cent in August.
Economic growth within the bloc remains a concern. The ECB lowered its forecast for GDP growth this year from 0.9 per cent to 0.8 per cent. It also trimmed its estimate for 2025.
Major central banks are now lowering rates in response to indications that the biggest inflationary surge for a generation has faded, with the US Federal Reserve expected to start cutting borrowing costs imminently.
Quote of the week
He who lives by the crystal ball is destined to eat ground glass.
Ray Dalio, billionaire investor who predicted the global financial crisis, on predicting financial market movements
What I’ve been listening to
In the run up to a Budget there’s always plenty of speculation about potential changes to the tax system. But, ahead of the first Budget from a new government on 30 October, rumours have been running wild after Chancellor Rachel Reeves revealed a £22bn black hole in the public finances. It was therefore timely to hear two of my colleagues, Kyle Caldwell and Craig Rickman, talk through the taxes that may be targeted on the latest On The Money podcast episode. The podcast, which is published every Thursday, is celebrating its 100th episode later this week. To mark the occasion, Kyle has interviewed Terry Smith, arguably Britain’s most well-known fund manager. Among the topics discussed are the ‘Magnificent Seven’ stocks, and why Smith has sold Diageo. It is a great listen, so do check it out.
Mryon Jobson is senior personal finance editor at Interactive Investor