Capital Gains Tax to change (again)?

We all know that tax rises are on the way but what and where?  One area now being looked at is Capital Gains.  There is talk of a reduction in the tax free allowance from its current £10,100 to just £2,000.  There is also talk that the rate of tax paid will be linked to the top rate a particular individual pays.  This could mean a rise from the current 18% to as much as 50%!

And remember, as CGT currently stands it taxes inflation!  Imagine an asset that increases at the rate of inflation, effectively leaving you no better or worse off.  Presently if you sell that asset after (say) 10 years, you are still taxed on the difference between purchase and sale price, even though the increase has left you no better off in real terms.

Could the Government do that at rates of up to 50%?  Unlikely but possible, even under a Conservative led coalition.  What is more likely is a mechanism that takes account of the passing of time and one that treats ‘business’ assets more favourably than ‘non-business’ assets.  We have actually already had this sort of mechanism twice before.  There used to be an inflation-based ‘indexation allowance’ which was later replaced by ‘Taper Relief’ which reduced the gain the longer you held the asset and was more generous to business assets.  Taper Relief was scrapped two years ago but now looks like it may be reinstated.  Of all the taxes, CGT seems to be tinkered with most!

So what is an investor to do?  At the moment it isn’t clear and until the awaited ‘emergency budget’ is announced we won’t know the new regime.  But what is clear is that as soon as the budget is announced, any investor or businessman should seek advice on how to best structure their affairs.

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