Capital Gains Tax Increase
Under The New Coalition Government
There has been much speculation in the press concerning tax measures proposed by the new coalition government and changes to be made in the forthcoming budget, announced for 22 June 2010.
One agreement reached between the Conservatives and Liberal Democrats is in relation to taxation. The agreement states:-
“We further agree to seek a detailed agreement on taxing non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities.”
This statement has caused a great deal of uncertainty as it sets out the Government’s intention without any details of the timing of the introduction of the new rate(s).
What does this mean in practice?
Business Assets
Generous exemptions for entrepreneurial business activities will be given but it is not certain if they will keep the entrepreneurs relief as it currently stands. This relief provides an effective rate of tax of 10% on the first £2million of capital gains on business assets, 18% thereafter. It is not known whether the rules for deciding what qualifies as a business asset, will remain unchanged, or whether the rates will increase.
Non-Business Assets
The rate of capital gains tax on investment assets such as, investment portfolio’s, second homes, antiques, works of art, etc, could be increased from the current 18% rate to 40% or 50% and/or possibly linked to the rates of income tax payable by an individual.
The current annual allowance of £10,100 for individuals may also be reviewed and reduced.
When will it happen?
No one yet knows when the Government plans to introduce any changes but the most likely possibilities are:
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The Date of the Budget
Increases from budget day would lead to difficulties in agreeing your tax liability as, 2010/11, would be a split tax year with two rates applying. This would create a larger administrative burden on you and the Inland Revenue;
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6 April 2011
This would give investors time to plan for any changes in tax rates;
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6 April 2010
This would mean retrospective changes which would be unprecedented and highly controversial.
There has been growing political and public unrest over the uncertainty which this announcement has caused and it is to be hoped that any changes will be from April 2011. We will find out the detail on 22 June 2010 and a budget bulletin will be issued as soon as possible thereafter.
Once the details are known and before you make any decisions do obtain advice from your tax and financial advisors. What may look good for tax planning might not be good for your overall investment strategy.
Alternatively, once the details of the increases are known and you have any concerns, please get in touch with John Salton Tel: 020 7674 0581
johnsalton@cumberlandellis.com
