Watson Esam | News | Capital Gains Tax – The New Regime

Having been in power for less than 2 months, the government delivered its emergency budget yesterday amid speculation of big tax increases.  Indeed tax increases were announced, but were they as big as expected?  Yesterday’s budget is definitely a talking point with many people thinking it was not as bad as it could have been – but how long will that last?

Capital Gains Tax (CGT) was one of the main talking points before the budget with expectations of a much bigger rise than materialised.  Not surprisingly it is now one of the budget issues on which most critics are now focusing.

The majority of experts expected a rise in CGT but the question was always how much and when?  It was one of the highest profile issues of the coalition agreement with the government announcing that it intended to raise non-business capital gains tax from its current 18% to “similar or close to the rate applied to income”.  This effectively meant a rise could have taken CGT to anything from 20% to 40% or even 50%, with critics naturally expecting the worst.

So what were the changes?

• An annual exemption freeze of £10,100, but there were implications that this is likely to increase in the future in line with the Retail Price Index (RPI)
• Business assets have the availability of ‘entrepreneurs relief’ at an increased lifetime limit of gains of £5 million, effective from today (23.06.10) – an impressive increase from £2 million.  Only last week Lord Sugar indicated that he thought that the £2million limit was too low
• For non business assets, lower rate tax payers still only pay CGT at 18% while higher rate and additional rate taxpayers have their gains taxed at a flat rate of 28% - not bad considering it could have been a staggering 50%

Of course some people are complaining about the increase but others might say the situation is favourable, as prior to April 2008 there were 3 tax bands on CGT when people were paying a top rate of 40%!

Obviously things can always change and the government has already said that future CGT rates will be announced in the 2011 budget so it is definitely a case of watch this space!!

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