Capital Gains hike?
Thursday, June 3rd, 2010Following on from the historic coalition between the Conservative and Liberal Democrat parties it is clear that pressure has been brought to bear on the Conservatives to adopt many of the LibDem policies in return for their support. In areas of fiscal policy rumours abound that Vince Cable has made a number of demands which have been accepted by the Tories.
Accountants and commentators alike have recognised for some time that the current main capital gains tax rate of 18% is unsustainable. The gap between income tax rates and capital gains tax rates is simply too large and gives rise to a multitude of avoidance opportunities. In addition, there is a massive fiscal deficit to be dealt with and the only surprise therefore is that capital gains tax rates have not risen sooner.
There now seems little doubt that the rate of CGT will be increased massively in the forthcoming emergency budget to be held within the next 50 days. Figures of 40% or even 50% have been mentioned.
So what can you do to avoid this penal rate?
If you have assets which are subject to CGT (such as quoted shares, second homes, investment properties etc) these are in the firing line. One way to avoid the problem would be to dispose of the asset prior to a change in the CGT rate.
If you wish to sell in any event, then the advice of course is to do this sooner rather than later. There are also techniques available if you wish to retain economic ownership of the asset in question. It is no longer possible to sell the asset and re-acquire it within 30 days (often referred to as “bed and breakfasting”) but it is still possible to “bed and ISA” or “bed and spouse” whereby you can sell the asset and crystallise the gain and in certain circumstances your ISA or spouse may choose to acquire the same or similar asset.
There are a number of issues to take into account. If you never have any intention of selling the asset then utilising one of these techniques will simply incur an unnecessary liability. You must also consider the timing of any tax payments.
If you think you will be caught by the likely change in the legislation,
