Andrew Cawkwell
Partner
Watson Burton LLP
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From: Vantis [mailto:tax@vantisplc.com]
Sent: 18 May 2010 11:44
To: Andrew Cawkwell
Subject: Capital Gains Tax Rate to Increase in Emergency Budget 2010
The Chancellor, George Osborne, will deliver his first, "Emergency" Budget on 22 June 2010. In its Coalition Agreement, published on 12 May, the Government set out a number of agreed tax measures [Please see - Coalition Government - Key Tax Policies], which we expect to be included in the June Budget.
One of these agreed measures, and perhaps the most significant for many, is the proposed increase in the rate of Capital Gains tax (CGT), from 18% currently to 40% or even 50%. This increased rate seeks to tax gains on the disposal of non-business assets at a similar or same rate as income.
We await confirmation of much of the detail of this proposal: here's a summary of what we know so far.
Business Assets
Some exemptions or reliefs from the new rate are expected for assets used in "entrepreneurial business activities". It is unclear though how this exemption will work, and what the effective rate of CGT will be. Will Entrepreneurs' Relief continue in the same form, or will it be extended? Will, for example, employee shares acquired through HM Revenue & Customs approved plans qualify for this exemption, or will they be subject to the full 40% or 50% tax?Non-business assets
Owners of share portfolios, second homes, buy-to let properties, valuable art work and other non-business assets are likely to be hardest hit by the rate increase, as there is no indication of any exemptions/reliefs for these types of assets. A CGT rate of 40% would represent an increase of over 122%.When will the new rate take effect?
It is unclear when the new CGT rate will take effect. Whilst there is no precedent for changing the CGT rate midway through the tax year, the new rate may be effective from Budget Day. Alternatively, it may take effect from 6 April 2011. It is essential that you take specialist advice now, to establish whether it may be beneficial to act in advance of Budget Day.Some planning opportunities
A number of opportunities to plan for the increased CGT rate exist, including:
- Where you are considering disposing of an asset pregnant with gain in the short/medium term, consider disposing of it before Budget Day, to pay tax on the realised gain at 18%.
- Where you wish to retain the asset or there isn't a ready market, it may be possible to plan to "bank" the current 18% rate for certain assets: contact us for further details.
- Disposing of quoted shares in your portfolio up to a value of the current annual CGT exemption of £10,100, thereby paying no tax on the gain realised. Shares may be repurchased, subject to certain rules, either personally or through a wrapper such as an ISA. Traditional advice has been to realise gains in your portfolio towards the end of the tax year: this year consider whether you should realise them before Budget Day.
- Considering the value of any capital losses you may have to carry forward, and how to secure the greatest value for them when setting off against your capital gains.
If further details are published by the Government in advance of next month's Budget, we will update you. In the meantime, for further details and to discuss how you might plan for these changes, please contact Chris Maddock, Head of Private Client Tax, or your usual Vantis Client Partner.
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The content of this document is intended for general guidance only and, where relevant, represents our understanding of current law and HM Revenue and Customs practice. Action should not be taken without seeking professional advice. No responsibility for loss by any person acting or refraining from action as a result of the material in this document can be accepted and we cannot assume legal liability for any errors or omissions this document may contain. © Vantis, May 2010. All rights reserved.
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