CGT rise could see admin problems
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Financial services companies are relieved by the Government’s lower than anticipated increase in capital gains tax but warn its immediate implementation could create admin problems for taxpayers.
In the emergency Budget on Tuesday this week, the Government announced it will increase the rate of CGT to 28 per cent for higher-rate taxpayers from midnight on June 22. The top rate of CGT had been expected to rise to 40 or even 50 per cent.
Basic-rate taxpayers, who represent over half of CGT contributors, will continue to pay the tax at 18 per cent. The annual CGT exemption allow-ance of £10,100 remains unch-anged this year but will rise with inflation in future years.
The 10 per cent CGT rate for entrepreneurs which currently applies to the first £2m of qualifying gains made over a lifetime will be extended to £5m to promote enterprise.
Chancellor George Osborne said the changes would reduce the incentives for individuals to exploit the differential between income and capital gains, while generating an extra £1bn from tax receipts.
He said the introduction of tapers or indexation allowances would have added “self-defeating” complexity and administration to the system.
PKF national director of tax Lisa Macpherson says changing the rules part way through the year will be messy for taxpayers and for HM Revenue & Customs to administer.
She adds: “An individual who sells both business and non-business assets could end up paying capital gains tax at 10 per cent, 18 per cent and 28 per cent for the same tax year.”
Syndaxi Chartered Financial Planning managing director Rob Reid says the move prov-ides an advice opportunity as investments in pensions may enable people to reduce their tax band and bring down CGT liability.
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