Emergency Budget - 22 June 2010

As promised by the Conservatives prior to the general election, the (coalition) government have announced an emergency budget for 22 June 2010.

There has already been much media speculation that there will be significant announcements on capital gains tax (CGT).  It was being widely tipped by the profession that Alistair Darling’s last budget would include increases in CGT and it was a big surprise that there were no changes in rates.  In fact, it came as a bigger surprise that instead of increasing CGT he effectively reduced it for business assets by extending entrepreneurs relief from £1m to £2m.

It is likely that many of the changes will hit non-business assets i.e. second homes, buy to let properties, stocks and shares etc.  We know that rates will go up but we need the answers to some specific questions:

How much?
The 18% rate will undoubtedly increase, but by how much?  Early speculation was that gains would be taxed at income tax rates, which would have meant for some people a 50% rate.  It now looks possible that there will be some compromise on this and that the rate might instead increase to something like 30%.

When?
CGT rates are normally set for a whole tax year.  It is possible that rates could be put up immediately on Budget day, but we think that it  is more likely that they will increase from 6 April 2011.  We may, however, see some anti-avoidance provisions in the Budget to stop people artificially triggering gains before 6 April in order to benefit from the current rates.

Which assets?
The government has said that it wants to give incentives for genuine entrepreneurial activity.  What will this mean in practice?  Definitions will be all important here.  We suspect that the definition will be narrow.

What about inflation?
Should the capital gain tax system give any allowance for inflation – if it doesn’t then people will be taxed on paper gains and not on true economic gains.  While rates are low the absence of inflation protection is not a great problem but if rates do go up significantly then it will be essential that this issue is recognised.

What should you be doing now?
If you hold significant investment assets – second homes, buy to let properties, stocks and shares etc – you are almost certainly facing very much larger tax bills when you come to sell.  There are things that can be done to help manage the tax rate, but you will need to act quickly.

If you have any questions regarding your affairs, contact us now.  You can call us on 01344 875000 or simply email your question to info@kirkrice.co.uk