Coalition Capital Gains

The coalition government has plans to significantly increase the rate of capital gains tax (CGT) – and it may also adopt the Liberal Democrat proposal to cut the CGT annual exemption from £10,100 to £1,000.

Investors with substantial portfolios of property, shares, or other assets who have not protected them in tax shelters – such as ISAs or pensions – face the daunting prospect of losing up to half their gains in tax.

This could have a serious impact on long term or retirement funding plans.

What can you do if this affects you? Colin Tice of Cassons chartered accountants and business advisers explains:

Government proposals are vague… “We will seek ways of taxing non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities” and the timing of any changes remains uncertain. The only thing we can say with any certainty is that there will be an emergency budget on 22 June.

If you are planning to dispose of any assets you might do so now in case the proposed increase in CGT takes immediate effect. On the other hand, will changes be backdated to the start of this tax year – although such backdating seems unlikely.

Given the Tory commitment to rewarding marriage it might seem unlikely that any action will be taken to remove the tax free transfer of assets between spouses. This would therefore remain an important area for tax planning.

Investments through ISAs are free of CGT. The annual allowance is now £10,200 per person per tax year and the opportunity to shelter gains by investing through ISAs, or other tax efficient vehicles, might become significantly more valuable, although they will be of no benefit to property investors.

If you have a second home or other property investment and are thinking of selling, a sale before 22 June might be taxed at 18%, but after the rate may be 40% or 50%!

Speak to your financial adviser as soon as possible but as with any investment planning, tax is not the only factor to be considered. Unfortunately, significant changes to tax rules have an understandable influence on investment decisions.

Colin Tice, tax partner, Cassons.