Money Matters Jun 10

Emergency Budget - The new Government will be having an emergency budget within 50 days of the election.  Is there anything I should be doing prior to this in terms of tax planning?

Answer:
Chancellor George Osborne has announced that the new Coalition Government will have its first Budget (aptly called an Emergency Budget) on the 22nd June.  He has stressed the need to reduce the £163.4 Billion deficit and wants to reform the Tax System to make it fairer.  We will not know until the 22nd what his plans are but we can speculate and all the pundits seem to agree that Capital Gains Tax (CGT) will get some attention.  It would be advisable to review any Investments that you hold which are subject to CGT.  It may be advisable to sell them prior to the Budget to benefit from current CGT Rates which are quite generous.  You will have an Annual CGT Allowance of £10,100 which means you can realise a gain (profit) of this amount and pay NO Tax.  Any gain over this will be taxed at a flat rate of 18%.  This compares favourably to current Income Tax Rates of 20%, 40% or at the top end 50%.  The current 18% CGT Rate only came in to effect in the 2008/09 tax year.  Previously any Taxable gain was added to your Income and then taxed accordingly (20% or 40%).  We also had Taper Relief and for older investments Indexation Allowance both of which could help reduce the CGT liability.  I would not be surprised to see CGT increase to 40% but in a bid to satisfy the ‘fairness’ aspect of his Tax System Reform I would hope that Taper Relief and/or Indexation Allowance (or something similar) would be reintroduced.  If CGT does increase from 18% to 40% it would mean an extra £2,200 in Tax for every £10,000 of gain which is why selling prior to the Budget may be beneficial.  In practical terms selling an asset in 30 (ish) days may not be possible.  A good example would be a Buy to Let Property.  However, most other investments such as Shares or Investment Funds can be sold in a matter of days.  Assuming you want to remain invested and do some Tax Planning you could sell and immediately reinvest.  However for this Tax Planning to work you must NOT reinvest in the same Shares or Fund within 30 days.  If your particular investment is doing well and you want to reinvest back into it this 30 day delay could prove to be costly if the price increased in the meantime, however the reverse is also true, you could benefit if the price falls.

Any reader interested in discussing this topic further can telephone Peter Sharratt on 01344 875000 or email peter.sharratt@kirkrice.co.uk

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.