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The facts about the future of Capital Gains Tax…

The activities of our new Coalition Government have been watched keenly over the past few weeks, particularly when they relate to our already fragile finances. Discussions have been well-publicised concerning potential changes in VAT, income tax, pensions and now Capital Gains Tax (CGT). With an emergency Budget due on 22 June, the fact that many plans still lack full details does nothing to put minds at rest.

The Coalition Agreement indicates that Capital Gains Tax will be increased to approximately the same rate as income tax. They have further suggested that there will be "generous reliefs" for entrepreneurial and business assets.

In Plain English:

  • The CGT rate is set to rise from 18% to 40% (or even 50%)
  • It isn't clear when this will take effect
  • A retrospective change from the beginning of this tax year seems unlikely
  • The CGT rate could change for disposals which take place after the "emergency budget" planned for 22nd June.
  • It has been suggested that the CGT rate will probably increase to 40% (or even 50%) from the beginning of the next tax year (i.e. for disposals after 6 April 2011)
  • It has been suggested that there will be a lower rate for business assets (but a figure has not yet been confirmed)

So, what does that mean for you?

Although full details of the proposals are not yet available, we can help you with implementing some suggestions that have been made as to how you might prepare for this change.

Non-business assets

If you have non-business assets (for example a buy to let property) you may want to consider making a disposal or transferring equity before the changes come into effect.

If, as expected, CGT is raised to 40pc for non-business assets, someone who bought a £100,000 second home 25 years ago could pay an extra £56,000 in tax if the Government decides not to take inflation into account, according to recent reports. Most properties bought by private investors, such as buy-to-lets and holiday homes, are regarded as non-business assets and so would not be exempted from any rise in CGT.

If a third party disposal is not possible, there are other options to "bank" the 18% rate and it would be worth your discussing these with your financial adviser.

Business assets (including shares)

At present Entrepreneur's Relief reduces the rate of CGT on disposals of business assets to 10%, but Entrepreneur's Relief is only available on the first £2m and business gains in excess of that are subject to CGT at 18%.

Consequently, where the gain will exceed the £2m per person limit, there may be some merit in trying to complete company sales or the disposal of business assets before the general CGT rate increases. There may even be ways to "bank" the 18% rate and it would be worth discussing these with your financial adviser.

It is also possible that the "generous" entrepreneurial/business reliefs referred to in the Coalition Agreement will be more generous than Entrepreneur's Relief.

What should you do if you're worried?

As with all situations like this, your first call should be to an expert. They will be able to discuss all of your options with you, or direct you to a specialist who can help.

If you would like to discuss any of your concerns please contact:

Jenny Pierce - Trusts, Estates & Wealth Management
Bridget Juckes - Commercial

If you would like to consider selling your property please contact:
Susan Ellis - Conveyancing

Telephone: 0117 9292811