Capital Gains Tax Raised in Emergency Budget

Capital Gains Tax rate only partially increased.

In May 2010, the Chancellor of the Exchequer, George Osborne, had announced that capital gains tax (CGT) would increase from 18 per cent to rates “similar or close to” those applied to income.

Many feared that, CGT rate would more than double to 40 or even 50 per cent from the current 18 per cent in a move that would have affected hundreds of thousands of Britons attempting to build personal wealth and early retirement.

Furthermore, it was rumoured that the threshold of £10,100, above which CGT becomes payable would be adjusted downwards by half or even more, multiplying the number of people who would be liable for capital gains tax.

Emergency Budget 2010: Capital Gains Tax measures

It could have been worse, but these are the main changes:

  • CGT rate increased to 28 percent from 18 percent, but only for higher rate taxpayers

  • Basic-rate taxpayers will continue to pay CGT at a rate of 18pc

  • The annual exemption of £10,100 will remain in place

Taper relief is not to be re-introduced

Initially the Chancellor had been lobbied by various groups to re-introduce some form of taper relief which would allow CGT to be reduced for assets held for several years.

Unfortunately, the Chancellor has rejected arguments for any form of taper relief. Apparently “reintroducing taper relief and indexation plans, as had been suggested, was shown in testing to be complex and self-defeating”.

Instead the Chancellor said he had “achieved his aim: to produce a simple system that would reduce the incentive of converting income into capital gains”.

In many ways, we'd been prepared for a doubling of the capital gains tax rate. However, I believe it's not quite as severe as many might have feared. Overall, the government has come up with a rather ‘elegant’ compromise.

Click here for some suggestions on how to avoid paying capital gains tax.

What does capital gains tax actually cover?

Basically, CGT is potentially chargeable if and when an asset increases in value, from when it's purchased, until the moment it's sold.

The starting point of paying any CGT on non-business assets starts at £10,100 net gains. Below that gain you don’t pay any capital gains tax.

Which type of assets of assest are covered?

The increase in CGT covers gains made on the sale of ‘non-business assets’ such as second homes, buy-to-let properties, shares and other investments. The type of assests, many people rely on to fund their retirements.

Investors with substantial and long-established holdings of shares or funds outside tax shelters, such as trusts, Individual Savings Accounts (stock and shares ISA’s), Self Invested Personal Pensions (SIPP’s), venture Capital Trusts (VCT's) and Enterprise Investment Schemes (EIS) will be hit hard if and when they sell their investments.

Click here for some suggestions on how to avoid paying capital gains tax.

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CGT exemptions for those nearing retirement! 
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The increase in the rate of
capital gains tax for
non business assets.
The recent Liberal-Conservative coalition agreement included the following statement in relation to capital gains tax: "We further agree to seek a …

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