Coalition to hike CGT and offer income tax cuts
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The Conservative-LibDem coalition is to hike Capital Gains Tax, increase the income tax threshold and put on hold any increase in the IHT threshold.
As part of an emergency Budget, due to be held within 50 days, the coalition will increase CGT significantly. It is likely to rise to around 40 per cent and will apply to non-business assets although there will be exemptions for profits relating to business to allay concerns about hitting entrepreneurs.
There will also be a significant rise in the income tax threshold as part of longer term plans to meet the LibDems proposal of increasing this to £10,000.
The Budget will also outline a new banking levy and an independent commission to look at separating retail and investment banking, a move the LibDems were pushing for.
The Bank of England will be given responsibility for macro-prudential supervision of the banks in a move that could see the FSA retained but with less power.
George Osborne becomes Chancellor while LibDem Vince Cable will take up a Cabinet role in charge of business and banking. LibDem leader Nick Clegg has been made deputy Prime Minister.
The coalition will not go ahead with Tory proposals to reverse Labour’s 1 per cent increase in National Insurance contribution for employees, due to take effect next April, but it will reverse the NI increase due to hit employers.
The Tories proposal to increase the inheritance tax threshold to £1m has been put on ice while the LibDem’s proposed mansion tax on properties over £2m has been scrapped.
The LibDems have agreed not to vote against the Tories proposed tax break for married couples.
The emergency Budget will outline £6bn of spending cuts for this financial year and commit to accelerating Labour’s plans to cut the deficit.
A Comprehensive Spending Review is likely to begin within days and will report later this year.
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Readers' comments (7)
Kelvin Lillywhite | 12 May 2010 9:24 am
All those old school advisers who love selling investment bonds due to the substantially higher commission than collectives will be laughing! 40% CGT should just about kill the collectives argument, i bet the insurers are rubbing their hands together in glee.
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Tom Scott | 12 May 2010 9:34 am
I hope they remember that the reason the CGT rate was dropped to 18% was to compensate for the removal of indexation. If CGT is increased without indexation being reinstated, investors will be taxed on inflation.
Let's hope this new Government can do better on the fair drafting and implementation of tax policy than the last one.
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sandyb | 12 May 2010 10:23 am
Not sure I heard much about a 22% rise in CGT prior to the election, although I am sure somebody did mention stopping the NI increases.
Coalition and compromise obvioulsy means the parties can renage completely on their manifesto.
I am so gald we have cleaned up politics and we can now trust our new mps to deliver their promises.
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Anonymous | 12 May 2010 4:28 pm
Difficult for indexation to be reinstated since there has been no incentive to retain original and full acquisiton data since the switch to a flat rate system.
Perhaps only possible if there is another cost rebasing exercise undertaken
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Anonymous | 12 May 2010 5:05 pm
What will happen is that no assets will be sold at a time of high taxation and the revenue will reduce. Also if they do not increase the IHT threshold people will wait until a change before they die to spite them.
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Gareth Smith | 12 May 2010 5:29 pm
Living in an old mill town in the North i really welcome the rise in personal allowances as it will be seen as a reward of going to work as the temptation for many is stay at home. Lets remember it is a personal allowance and for a married couple the savings will be quite substantial.
As for the CGT hike i hope they do not cut the annual exemption allowance and if i was a BTL portfolio holder i would be thinking about selling up properties that have had very high rises in value very quickly.
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Anonymous | 19 May 2010 9:14 pm
Our second property is our pension. We bought it with our redundancy money some years ago. Now we need to sell the property to provide an income for the rest of our lives. We are not well off. There are many like us. If we had several properties (as I expect Nick Clegg and David Cameron have) then we would not be so devastated by this potential rise in CGT.
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