A rise in Capital Gains Tax?


Now that we have a coalition government between the Conservatives and Liberal Democrats it is now time to look at some of the implications moving forward. Irrespective of whichever party won the general election it has become clearly apparent that any new government would have to take steps to reduce the UK government debt, which at the end of December 2009 stood at £950.4 billion (the equivalent of 68.1 per cent of Gross Domestic Product). It has been forecast that the UK government will have to borrow another £167 billion during 2010.


To begin repaying this debt the government has two main options – reduce expenditure on public services and increase tax revenues. Although there will be cuts to services in the coming months and years; this alone will not reduce the debt and therefore taxes will have to be increased. With this in mind the rate of capital gains tax for non-business assets is expected to rise from its current rate of 18% up to as much as 40 per cent. Non-business assets will include, among others, any investment directly held in shares or collective investment funds, and second homes.


The Conservatives have always said that if they formed the next government that they would issue a budget within 50 days. Will we see investors selling shares and second homes in the next few weeks to take advantage of the lower tax rate in case it disappears? Although this may be a sensible strategy for some investors, I would sound a word of caution. You should not be stampeded into selling an investment that you have bought with the long term in mind, simply because the rate of capital gains tax may increase. You should also remember that currently each individual has an annual tax exemption with no capital gains tax payable on the fist £10,200 of gains realised in each tax year. Additionally it is important that investors seeking either income or growth continue to use all the tax efficient wrappers available – such as individual savings accounts and pension arrangements.


Whatever happens with capital gains tax, or indeed any other tax, it is important to regularly review any investments, not only for tax purposes, but for suitability, charges and performance.


If you would like to discuss the likely impact of any potential capital gains tax changes, or any other issues affecting your investments then please contact me, or one of the members of the financial planning team and we would be happy to talk to you.