Coalitions mean compromises they also invariably lead to greater uncertainty, but have the Tories been able to keep face by using the guise of the need to compromise to serve up the medicine we must accept in exchange for better times ahead?
Not only have the cuts to inheritance tax previously promised by the Tories been shelved, the Lib-Con coalition have stated their commitment to hike capital gains tax significantly for non business assets to fund an increase in the personal allowance for income tax in order to help lower and middle income earners – some voters may at this stage wonder exactly what manifesto they thought there were voting in.
Capital gains tax reforms
The coalition agreement was published on 12th May and despite the lack of detail we do know the following.
Rate of CGT on non-business assets is to be more closely aligned to income tax rates.
“Generous exemptions” – for gains on business assets.
As to whether we have a single flat rate, rates reflecting whether the taxpayer is a basic or higher/50% taxpayer and the nature of the generous exemptions are all areas of speculation.
What is equally uncertain is whether the changes will be ushered in the next tax year or whether we have unprecedented mid-year changes. Clarity has been promised, by the coalition government promising to have a budget within 50 days of the announcement of the coalition agreement – taking us to somewhere near mid June.
What should clients be looking to do?
Those with non-business assets may consider bringing forward disposals to bank the generous 18%
Those with business assets may consider delaying disposal to benefit from the generous exemptions – in the absence of details it is impossible to say whether individuals will be better or worse off where these assets would qualify for Entrepreneur’s Relief.
All clients should be reviewing their particular circumstances as there are planning opportunities that will enable them to bank the current rates without necessarily immediately selling to third parties not least given the persisting soft market conditions.
There will also be considerations on how best assets are held or what assets are held to maximise from any enhanced benefit that may arise from the generous exemptions.
The one thing clients and advisers can ill afford to do is to park the considerations until just before the tax year-end.
The briefing document aims to provide an overview of the intended reforms to capital gains tax and if you would like to know more or to discuss particular scenarios please contact us.