Auditel Consultant:
Jack Pokoj

Capital Gains Tax on the increase!

01 Jun 2010 | Filed under: Finance

There are many uncertainties as to where the Conservative-Liberal coalition will take the country and the measures that they will be able to pass through Parliament. However, given the hazardous state of public finances, we can say with some certainty that there will be a number of tax rises, and amongst the first of these will be a Capital Gains Tax (CGT) increase. This is due to be announced in an emergency Budget on 22 June

The coalition agreement makes a clear commitment to “taxing non-business capital gains at rates similar or close to those applied to income”. In plain English, this translates to a higher rate of tax payable on profits made by individuals on the sale of second homes, buy-to-let properties, stocks and shares and many other types of assets classed as “non-business”. Commentators are speculating that the rate could be 40% or 50%, which would be more than a doubling of the current rate of 18%.

Relief for Business Assets

The coalition agreement does ensure us that “there will generous exemptions for entrepreneurial business activities”. So for example, if you are selling your own business or perhaps a shareholding in your employer’s business, the rate of Capital Gains Tax should be lower. We already have Entrepreneurs’ Relief which partly fulfils this function, whether this is retained or we will move to another form of relief is not clear.

This does not mean that owners of business assets can necessarily rest easy, for example, Entrepreneurs’ Relief is currently capped at £2m in a lifetime and therefore any excess gains could be subject to the new higher rate of Capital Gains Tax. We also can not be sure as to how wide the definition of a “business asset” will be and many assets currently classed as such, could fall outside a stricter definition. And most importantly, is the rate of tax on business assets really going to remain as low as the current 10%?

Take Action Now

Tax specialists have developed a number of strategies which will allow you to lock in the current rate of Capital Gains Tax – the likes of which we may not see again for a very long time! Readers should ask themselves whether they own any assets standing at a significant gain which would be chargeable to Capital Gains Tax on a future sale. If the answer is yes and the gain is in the region of £250,000 or more, we would advise them to consult a tax adviser and quickly! The increase could be effective from Budget day, as opposed to 6 April 2011