Basic rate tax-payers will get a nasty CGT shock following the Emergency Budget
Yesterday the Chancellor announced that basic rate tax-payers can still enjoy a capital gains tax (CGT) rate of just 18% while high rate tax-payers will get stung by a new 28% rate. But the devil is in the detail as basic rate tax-payers will likely end up paying 28% as well.
Basic rate tax-payers may have been letting out a sigh of relief following headlines that only high rate tax-payers will be hit by the new CGT rate. However, if you dig a little deeper things aren’t completely as George Osborne would have you believe.
If you actually take the time to read the Budget document (you’d have to be obsessive like me – or sad) it states that an individual’s gains will be added to their income when assessing whether they remain basic rate tax-payers for the purposes of the new higher rate of CGT. So, anyone whose income and gains exceed £43,875 will be liable to pay 28 per cent, rather than 18 per cent, CGT on at least part of their gains made from today.
As Frank Nash of accountants Blick Rothenberg (quoted in The Telegraph) ‘’That’s a huge difference and may seem very unfair on people with lumpy assets, such as second homes, which – unlike shares – cannot be sold in small parcels to stay within annual allowances or limits’.
Yes, most basic tax-payers don’t even know what CGT is but apparently 65,000 of them paid CGT last year.
Going forwards this will likely mean that people will need to mitigate CGT by selling assets in their spouse’s name, but we will look at this in more detail in a future post. On a more positive note the annual CGT allowance of £10,100 is to remain the same (there were rumours of a possible reduction) for this tax year and will increase in line with inflation year on year.
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