Chancellor Rachel Reeves unveiled Labour’s first budget since being elected to government – with a focus on slashing national debt, boosting the UK economy and protections for working Brits.
Labour’s autumn budget saw the Finance Minister announce an increase in capital gains tax to 18 per cent and 24 per cent for different earners, which she promised would ‘raise £2.5 billion for the economy’. The carried interest rate rises to 32 per cent for fairness in the fund management sector.
However there are concerns that changes to CGT could affect couples who are negotiating a family settlement and even have an affect on people who are in ‘abusive relationships’.
Family lawyers at Stowe Family law have commented that with the anticipated rises in rates couples will ‘feel the impact of CGT’.
Judit Kerese is an Associate at Stowe Family Law said:“The Government’s budget today means big changes for couples who are negotiating their financial settlement, and family law professionals need to be aware of how to deal with clients who will be affected.
Over the past few weeks, we have been advising couples to delay their financial settlements until there is more clarity over CGT, and to seek expert financial advice.
With the anticipated rise in rates to 24% for higher band rates coming into force now is the time to act. Significantly more couples will feel the impact of CGT on their divorce settlements, especially as the tax-free allowance reduced to £3,000 earlier this year.
Couples with investment properties, second homes, stocks outside Isas and even collections of artwork or jewellery will be affected – and this is not just the high-net-worths. Thousands of couples with relatively modest assets will be far more heavily impacted than the wealthy.
The 24% rate will mean that any assets that need to be sold will be subject to more tax, meaning a reduction in the overall matrimonial pot of those selling CGT-applied assets.
Where couples are mid-negotiations, there may need to be adjustments made. Properties and other assets that will be subject to CGT upon sale will result in less profit than might have been the case earlier this month. It is advisable that as well as receiving legal advice, clients are directed to financial advisers who can give them expert guidance on the potential impact of CGT on their assets.
Similarly, those anticipating inheritance in the immediate future, for example divorcing couples with elderly or ill parents, will need to be alive to the amendments to inheritance tax. Some of the existing exemptions have now been removed, specifically on pensions, meaning more people will be subject to tax dues. The changed rates will mean less overall retained by the recipient, and therefore less in the matrimonial pot. Where pension sharing is part of the settlement, this could have a huge impact.
The uncertainty of the last few weeks has culminated in today’s Budget, and now is the time for divorcing couples to act. Family lawyers need to fully understand the implications of the Budget and be ready to advise clients depending on their unique situation.”
The changes have been designed to “promote business growth and wealth creation while supporting public finances”.
Labour has revealed plans to raise capital gains tax rates, aligning them more closely with property taxes. Rachel Reeves said the revised would drive economic growth while generating crucial revenue for public services.
The Chancellor pointed out that despite the CGT increase would retain the UK’s position as one of the lowest capital gains tax rates among Europe’s G7 economies.
Reeves emphasized the balance between encouraging entrepreneurial ventures and ensuring fairness in the taxation system, particularly in the fund management sector where carried interest taxation will rise to 32 per cent.
Ms Kerese continued: “The change to CGT announced in Labour’s Autumn Budget, could have an unconsidered impact on couples where financial abuse and coercion are being utilised to trap vulnerable people in an unhappy relationship.
“Raising CGT will mean those couples with second homes, investments and shares, and even artwork or expensive jewellery, will be subject to higher rates when they sell these assets on divorce.
“Sadly, divorce can often be used to coercively control, particularly where money is involved. With increased taxes, more victims may be forced to stay in their relationship because the amount they receive from the sale of an asset will be considerably less when Labour’s budget comes into force. Their overall matrimonial pot will shrink and this may intensify an already abusive relationship, leaving victims with less to escape with than they might previously have had.
“Further, there are many couples who have assets which could be impacted by CGT, but do not have significant liquid capital/disposable income. To understand the full extent of the impact of the budget, people in this situation may not be able to afford to access full legal and financial advice. If they are in a coercive controlling relationship, they may feel forced to agree to a certain divorce settlement imposed on them as opposed to making a fully informed decision.
“In addition, assets can be used as tools to punish in divorce proceedings. Where one party refuses to split the asset, the item or property then needs to be sold and the profits divided. Ultimately, however, where assets have CGT applied, this negatively impacts both people and will do so increasingly when the Government raises the rates.
“We could well see more coercive control and financial abuse in couples where there are assets needing to be sold in divorce. Even more worryingly, we may not even know the full extent of the CGT increase on vulnerable people stuck in controlling marriages.”