Capital Gains tax changes in Budget speech

Leading up to the Budget speech today Capital Gains tax (CGT) was perhaps the most contentious issue, or certainly the matter causing most uproar as the government was expected to hit hard with a large increase.

As it was, CGT changes were greeting with relative calm and were not deemed to be as dramatic as they could have been. Certainly they took back seat to show stoppers such as the VAT increase and benefits cuts. So as the dust begins to settle on the budget speech, just what changes have been made to CGT? In brief, the changes outlined are as follows:

- Taxpayers on higher rates will pay 28 per cent on their capital gains
- The Annual Exempt Amount for capital gains tax will remain at £10,100 this year and will rise with inflation in future years.
- The 10 per cent capital gains tax rate for entrepreneurs, currently applying to first £2million of lifetime gains will be extended to the first £5million

It is no surprise then that most welcomed the changes which leaves the capital gains of the majority of taxpayers protected. The top rate introduced is no higher than any of the UK's international competitors and the incentive should be reduced to convert income to capital gains.

Julie Patterson, Director of Authorised Funds & Tax at the IMA, said:

"The Chancellor's decision to maintain the capital gains tax threshold at £10,100 is very welcome. This provides an important buffer for those on modest to middle incomes against capital gains arising simply from inflation. It keeps thousands of basic rate tax payers out of complex annual tax calculations as they draw down their savings during retirement. Preserving the threshold sends an important message that people should continue to be encouraged to save for the long term."

However, David Whittaker, managing director of Mortgages For Business was concerned at the impact on the growth of the property market, saying that:

"By increasing CGT the government is taking money out of the economy. In the property market the liquidity pool is still relatively parched. A healthy property market tends to mean a healthy economy. But by taking more cash out of the pockets of these investors the government is threatening to stunt the growth we expected to see in 2011."

Other commentators would suggest that there was little to no chance of growth in the property market in 2011 anyway, and a smaller than expected increase in CGT will mean that investors and private landlords are not altogether scared away from the market. The move to keep the stamp duty exemption for first time buyers up to the value of £250,000 should also help keep the property market moving along, albeit at a slow pace.

If you are based in Northern Ireland and require advice on a Capital Gains tax issue or any other tax related matter, contact Wilson Nesbitt solicitors in Belfast or Bangor by emailing [email protected] .

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