With the Pre Budget report due on the 9th December, one of the main issues for investors is whether capital gains tax will change.
You may remember that under the old rules capital gains tax was paid at the same rate as income tax; 20% or 40%. Longer term investors benefited from reductions, including taper relief, which meant the tax rate paid could reduce to 24% for a higher rate taxpayer and 12% for a basic rate taxpayer.
Since April 2008, capital gains tax has been a flat rate of 18%. Compare this to income tax rates of 40% for higher rate taxpayers and 50% for the highest earners from 6th April 2010. Perhaps the Chancellor may see this as a gap that needs to be tightened.
The talk in the investment world is “what will happen to capital gains tax”: I have seen various predictions and speculations, including a rise to a flat rate of 25% or 30% or even a link back to the rate of income tax paid, potentially a big hit, especially for high earners.
If there is going to be a change to capital gains tax, one strategy would be to announce an increase in the pre-Budget report to come into force on the 6th April. This would stimulate all sorts of selling and transferring activity before the end of the tax year, crystallising gains and creating additional and welcome tax revenue in the short term – revenue that could perhaps pay for vote sweeteners in a General Election year?
What should investors do? Each individual investor’s circumstances are unique so it is impossible to give a one size fits all answer. However, it’s probably sensible to suggest that if you are going to realise gains anyway I would be inclined to get on with it. We cannot definitively say what if any changes will be made or when they will come into force but if you’ve already decided, I don’t believe there will be any benefit in waiting and it makes sense to use your annual capital gains tax exemption every year, if appropriate.
Sheltering your investments from capital gains tax using an ISA becomes even more important – pound for pound, the ISA is the undisputed world champion of tax saving products. Using Bed and ISA to take some profits and shelter existing investments from future tax works exceptionally well. More information on Bed and ISA is available here.
Finally, if capital gains tax does change, we will be here with information and guidance to help you with your decisions. It has never been more true to say that tax rates and reliefs, and their value thereof, are subject to change.
You may remember that under the old rules capital gains tax was paid at the same rate as income tax; 20% or 40%. Longer term investors benefited from reductions, including taper relief, which meant the tax rate paid could reduce to 24% for a higher rate taxpayer and 12% for a basic rate taxpayer.
Since April 2008, capital gains tax has been a flat rate of 18%. Compare this to income tax rates of 40% for higher rate taxpayers and 50% for the highest earners from 6th April 2010. Perhaps the Chancellor may see this as a gap that needs to be tightened.
The talk in the investment world is “what will happen to capital gains tax”: I have seen various predictions and speculations, including a rise to a flat rate of 25% or 30% or even a link back to the rate of income tax paid, potentially a big hit, especially for high earners.
If there is going to be a change to capital gains tax, one strategy would be to announce an increase in the pre-Budget report to come into force on the 6th April. This would stimulate all sorts of selling and transferring activity before the end of the tax year, crystallising gains and creating additional and welcome tax revenue in the short term – revenue that could perhaps pay for vote sweeteners in a General Election year?
What should investors do? Each individual investor’s circumstances are unique so it is impossible to give a one size fits all answer. However, it’s probably sensible to suggest that if you are going to realise gains anyway I would be inclined to get on with it. We cannot definitively say what if any changes will be made or when they will come into force but if you’ve already decided, I don’t believe there will be any benefit in waiting and it makes sense to use your annual capital gains tax exemption every year, if appropriate.
Sheltering your investments from capital gains tax using an ISA becomes even more important – pound for pound, the ISA is the undisputed world champion of tax saving products. Using Bed and ISA to take some profits and shelter existing investments from future tax works exceptionally well. More information on Bed and ISA is available here.
Finally, if capital gains tax does change, we will be here with information and guidance to help you with your decisions. It has never been more true to say that tax rates and reliefs, and their value thereof, are subject to change.
