Capital gains tax hike is a let-off for investors
Posted on June 22nd, 2010
Considering the widely trailed, and bitterly contested, suggestions of what could happen to capital gains tax, investors should thank their lucky stars.
In the end it turned out to be quite simple: CGT is up to 28% for higher rate taxpayers from midnight tonight.
This was a substantial let-off for investors, landlords and second homeowners who had expected CGT to rise to 40%, or even 50% for the highest earners.
They had also been forecast a cut in the CGT-free annual allowance, which would have proved a double whammy.
The worst case scenario was CGT up to level with higher rate tax and annual CGT-free allowances slashed. And it all to come in immediately.
A 28% rate of CGT for higher rate taxpayers may seem a hefty hike on the current 18% flat rate, but the use of the annual allowance and Isa allowances can help ease tax bills for those selling shares and funds and married couples and civil partners can double up for £20,200-a-year in gains tax free.
Buy-to-let landlords already get a big tax break in the ability to offset mortgage interest against income tax on rent, and second homeowners who rent our properties also get a chunky tax break, so they don’t have too much to moan about.
The decision to not reintroduce taper relief will disappoint those who have held assets for a long time, but before the 18% flat rate was brought in three years ago taper relief only got bills down to 24%.
The suggestion that it unfairly moves the goalposts on investors fails to stand up, as CGT has only been at a flat rate of 18% for three years. If you’ve based your entire investment outlook on a that three-year period, you may want to rethink your strategy full stop.
Personally, I would have brought in the CGT hike in six months time or next April. This would have removed the suggestion that it did not give time to people to plan ahead and also had the pleasant side effect of some more homes being put up for sale.
A move to the exits by landlords and second homeowners would have put more properties on the market, helped ease high house price inflation driven by a lack of good homes for sale and also allowed property investors time for a bit of planning on their illiquid assets.
That didn’t happen, but overall I’d say under the circumstances this is fair enough. And Osborne’s explicit statement that the CGT allowance would rise with inflation in future means it’s here to stay.
It’s a tax hike, but it could have been worse.
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Tags: Capital Gains, Capital Gains Tax, Gains Tax, Investors
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