Uncertainty over Capital Gains Tax Changes

Coalition partners' announcement leaves many questions unanswered.

Following the brief announcement from the Coalition partners last week, we had all been hoping for some clarification on their tax proposals in relation to the increase in the rate(s) for Capital Gains Tax. However, the announcement on 17 May simply tells us that the Emergency Budget will be on Tuesday 22 June.

Amongst the unanswered questions, we highlight the following:

 

• From what date will the changes be introduced?
  
            6 April 2010 = the beginning of the current tax year;
            6  May 2010 = General Election Day;
            12 May = the original brief announcement about intended increases;
            22 June = Emergency Budget day itself.
  
  
• Will Capital Gains Tax rates revert to mimicking Income Tax rates as they did until April 2008 or will the Chancellor opt for a simple but increased flat rate so that all personal taxpayers pay at the same rate?
• Will the promised "generous" reliefs for entrepreneurial gains be more or less generous for any given situation than the existing Entrepreneurs' Relief?

As you can see from just these questions, it is impossible to provide any useful rule of thumb as to what clients should or should not do in advance of 22 June 2010. All we can sensibly say at the moment is that:

 

• significant increases in the rate of CGT on the disposal of non-business assets appear inevitable;
• it is highly unlikely that any adverse changes will be back-dated but that cannot be ruled out;
• if you are contemplating an early disposal in order to beat the possible 21 June deadline, you should consider the market conditions as well as the tax implications - it is possible that the proposed changes will impact prices;
• making a disposal before 22 June does not guarantee any tax saving but (with the possible exception of business asset disposals) it would be unlikely to increase the liability when compared to a disposal later in the current tax year;
• if you are currently in the process of disposing of what might be classed as a business asset, you should seek specific advice;
• if you are likely to trigger a gain on a gift to a family member or trust, you need to consider the impact for the donee(s) and again take specific advice;
• particular care is needed if a sale has conditions attached to it - the disposal date for CGT purposes is normally the date when a contract becomes unconditional (whether that is before or after completion).

We are very aware that the whole of this advice can be summed up as, "Who knows?" We obviously want our advice to be much more helpful than that but in the current uncertainty, we feel that this is the best we can do on a general basis.

If you would like to discuss any scenario, whether or not within those referred to above, please get in touch with your usual Rabjohns contact and we will ensure that you have as full an understanding as possible of the tax implications of your proposals.

Finally, please note that we are planning a Post-Budget Breakfast on the morning of Wednesday 23 June when we will be explaining to our clients and professional contacts what the changes will mean for them. Everything should become clearer then in relation to future disposals.

 

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