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The impact of Covid 19 has long tentacles, the distress to families who have lost loved ones and the financial impact on many has yet to fully materialise. One change that has yet to come is the inevitability of higher taxes, but in which form is not yet to known. It is however considered certain for the government to raise Capital Gains Tax to be on a par with Income Tax. Currently the higher and additional rate income tax payers only have a 20% tax liability  for gains from the sale of commercial property and shares, but this is expected to increase to 40% and 45% respectively at the next budget

Capital gains only become payable on the sale of the assets and as with case of commercial property these asset probably have been held for a long time and have built up considerable gains with the owner not planning to sell anytime soon.

As the saying goes it’s never wrong to take a profit, so what is the solution?

You may have heard of bed and ISA which is where you sell your equity investment and immediately buy it back within your ISA portfolio, this crystallises the gain from a tax point of view, but then leaves the investment in a more tax efficient position, this option utilises the Capital Gains Tax annual allowance and the annual Individual Savings Account (ISA) allowance and is ideal for existing portfolios of investments not held in a ISA wrapper.

Another solution could be to Bed and SIPP your commercial property. This is where your pension fund purchases your commercial property, you get to crystallise your gain at the current lower rates but you still keep control of your asset. This releases the equity previously tied up the property that you never expected to see. Regrettably not everyone has enough monies in their pension to fund this, but a husband and wife or family can pool their pension monies together to help facilitate this. Additionally the pension fund can borrow to fund  the purchase. We would also advise you to fund your pension to its maximum annually as it is now in my opinion the only reasonable way of minimising tax on your income

Alternatively I hear you say there is no capital gain on death, however, this doesn’t avoid inheritance tax on the asset, whereas holding legitimate assets in a pension fund is now one of the most efficient ways on passing down monies to future generations in a tax efficient manner typically outside of the estate for Inheritance Tax.

For example purposes only please consider the scenario below regarding a commercial property sale and purchase in a pension fund as follows:

Jim is an additional rate (45%) tax payer and bought an industrial unit for his business in 1995 for £300,000  current value £612,300

Current Capital  gains tax liability

Total Gain                                         £312,300

Less annual CGT allowance           £12,300

Total Gain                                         £300,000

CGT tax @ 20%                               £60,000

Using the assumption that the chancellor abolishes the CGT annual allowance and that CGT will taxed at your highest rate the position changes somewhat dramatically to

Total Capital Gain £312,300 @  45% CGT =  £140,535 therefore a tax saving of  £80,535

Further mitigation of tax could be achieved by adding your spouse prior to disposal.

In summary the point is to seek advice before you take any action, but don’t delay things may not be as they are now, we await to see where the future takes us. Our thoughts are with those less fortunate and we intend to provide some aid to those less fortunate in the coming festive period when we expect they will need it most.


Harvey Sutton DipPFS

Independent Financial Adviser, Managing Director