CGT increase: what should you be doing now?

The Coalition Agreement between the Conservatives and the Liberal Democrats makes it clear that a rise in capital gains tax rates is imminent.

We will seek ways of taxing non-business capital gains at rates similar to those or close to those applied to income“, Coalition Agreement, 20 May 2010.

Generous exemptions are also promised provided that the assets being disposed of are connected with “entrepreneurial business activities”.

What changes which will be made, and when they will be made, is not certain. However, it is likely that the upcoming emergency Budget on 22 June will see significant changes introduced. It is widely expected that the capital gains tax rate will be increased for certain assets, perhaps to 40%, or even 50%, for higher rate taxpayers.

Not all taxpayers will be worse off – if entrepreneurs’ relief is widened then it may be that more taxpayers will qualify for an effective rate of 10% (or other favourable rate) on their business assets. We may even see the reintroduction of some form of taper relief which will have a similar effect.

Taxpayers who hold assets as an investment (such as a second home), or who hold shares in an investment company, are likely to be hit. The uncertainty regarding the scope of the exemptions for entrepreneurial business activities may also give rise to concern.

Because of this taxpayers may wish to consider what steps can be taken now to “lock in” the 18% rate of capital gains tax.

Whether this is possible will depend on the precise circumstances of the taxpayer in question. However, it may well be possible to trigger a disposal now without the need to actually sell the asset by, for example, entering into an unconditional contract for the sale of the asset to a connected party (such as a trust or a company) which is completed only when and if a third party buyer is found.

Such arrangements would need to be carefully structured to ensure that the seller does not have to pay tax before the asset is in fact sold to a third party buyer.

We would be delighted to consider with you whether similar arrangements to these may be appropriate for you.

For more information, please contact one of the Olswang tax partners listed below.

Natasha Kaye Natasha Kaye Natasha Kaye Natasha Kaye Natasha Kaye
Natasha Kaye Mark Joscelyne Graham Chase Stephen Hignett Cliona Kirby
+44 20 7067 3389
Click to email Natasha
+44 20 7067 3390
Click to email Mark
+44 20 7067 3387
Click to email Graham
+44 20 7067 3397
Click to email Stephen
+44 20 7067 3386
Click to email Cliona

The Olswang tax group will be blogging again during the afternoon of the emergency Budget, Tuesday 22 June 2010.

The Blog will be interactive, so please do join the debate.