Emergency Budget – Increase in CGT for higher rate tax payers 17 Jun 2010

Paven Basuita, a solicitor in Osbornes’ family department details the effect of the recent changes to Capital Gains Tax announces in the emergency budget.

The recent emergency budget announces some significant changes to Capital Gains Tax (CGT) which will affect those disposing of assets realising a chargeable gain.

Prior to the recent budget, CGT was a flat rate of 18% on the chargeable gain realised. As of 23 June 2010, this has now changed, with the government introducing different rates depending on individual circumstances. The most significant change is for higher rate taxpayers who will now have pay CGT at 28% on their chargeable gains. The annual exemption remains the same at £10,100 for the current year.

For basic rate taxpayers, they will only pay the 28% tax rate if their total taxable income plus the gains they make (after allowable deductions) exceeds the basic rate income tax band. In these circumstances they will pay 28% tax on the part of the gain which exceeds the basic rate threshold and 18% tax on the part of the gain below that threshold.

A small concession was made to entrepreneurs by increasing the lifetime allowance for Entrepreneurs’ Relief from £2 million to £5 million from 23 June 2010.

Other significant changes detailed by the Chancellor in the emergency budget include:-

  1. VAT will increase from 17.5% to 20%, although this change has been delayed until 4 January 2011.
  2. The personal allowance for the purposes of income tax will be increased to £7,475 from April 2011, although there is a corresponding reduction in the basic rate limitation, thus this change affects only those on low incomes.
  3. There will be a reduction in eligibility for tax credits for those families with income of over £40,000 per annum from April 2011.
  4. Child benefit is to be frozen for three years from 2011-12.
  5. The main rate for corporation tax is to be reduced by 1% per annum until 2014 whilst the rate for smaller companies is to reduce to 20% in April 2011.

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