Read it and weep!
Read it and weep!
A huge step back in policy allows a tax grab
As the mainstream press herald the ‘surprise’ announcement on Capital gains tax (CGT) by the chancellor this week, those in the industry know that this has been on the cards since IHT and CGT were glaringly absent from Boris’ manifesto promises to avoid tax increases.
What is being proposed
· That CGT rates be increased to bring them in line with income tax rates whilst at the same time reducing the capital gains tax annual exempt amount from £12,300.
· That the taxpayer should not get a CGT base cost uplift at death to probate value where a business relief removes the Inheritance Tax charge. Instead one should be treated as acquiring the assets at the historic base cost of the person who died.
· Re-base CGT to the market value of assets in the year 2000, effectively wiping out any gains accruing before this date, (this was last done in 1982).
· Increasing the minimum holding in a business from 5% to 25%, lengthening the qualifying holding period to 10 years, and linking the relief with retirement in order for Business Asset Disposal Relief (previously called Entrepreneur’s Relief) to apply.
Let’s be clear – in terms of tax code this move is a huge step backwards, both in real financial terms and philosophically. It ignores any forward motion that has been made and tramples on the subtleties of not just CGT, but also its interaction with several other parts of the tax system, in particular inheritance tax.
Whilst this report may be the worst case to soften us up for something that is less drastic in next year’s March budget, I have no doubt that these retrograde steps will be seized upon by the chancellor who desperately needs to claw back the enormous sums spent fighting the current economic crisis.
Make no mistake, this report is nothing new or surprising and I believe is intended to frighten the horses. In fact, these recommendations remind me of tax rates and reliefs that were previously abolished (retirement relief anyone?). One thing seems certain is that changes and developments to IHT and CGT that have allowed families and individuals the power to pass on wealth as they see fit are set to become much less generous.
The options laid out to either raise the rates levied and reduce the allowances or levy it on to other assets all end up reversing the clocks as the current government contorts itself to simultaneously avoid tax increases while increasing tax.
The justification “the present rules can distort behaviour” is basically a clear message from the government and the OTS: Use your allowances now or lose them. Changes are on the horizon and while it is not suitable for everyone to change their financial plans because of mere policy speculation, it is worth your while to review plans of what seems to be coming: a harsher tax environment.
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