Relief at lower-than-expected rise in capital gains tax
News that capital gains tax (CGT) is being increased to 28% for higher earners was met with relief today.
The Chancellor announced plans in the Budget to hike the rate at which the tax is charged on non-business assets from 18% to 28% from midnight tonight for higher rate taxpayers.
But the rate is far lower than the 40% or 50% that it had been widely feared CGT would be increased to.
The annual CGT allowance will also remain unchanged at £10,100, despite speculation that it would be slashed.
There was even an increase in the lifetime allowance for gains made by entrepreneurs which are free of the tax, with this rising from £2 million to £5 million.
The rate at which entrepreneurs pay the tax will remain unchanged at 10%, while basic rate taxpayers will continue to pay CGT at 18%.
Leonie Kerswill, personal tax partner at PricewaterhouseCoopers, said: "Many taxpayers were worried that CGT rates would be aligned with the highest rates of income tax so will breathe a sigh of relief that the top rate has only been increased to 28%."
But David Kilshaw, head of private client at KPMG, said: "A 28% rate sounds relatively good in the circumstances - but only because people were fearing a 50% rate. It still gives the UK one of the highest rates in Europe."
The increase aims to narrow the gap between the rate higher earners pay on CGT and the one they pay on income tax to cut down on income tax avoidance.
It is thought that around £1 billion in tax revenues is lost every year through people taking income as capital gains.
Today's change is expected to boost revenues by £725 million next year, rising to £925 million in 2014/15.
But George Osborne said he had stopped short of raising the rate at which the tax is paid above 28%, as research had suggested this would actually lead to a fall in revenues.
Mr Osborne also refused to bow to pressure to re-introduce some form of taper relief to reduce the amount of tax paid by people who have held assets for longer periods, in order to keep the system simple.
The increase in the CGT rate is not expected to spark of flood of sales from buy-to-let investors, as had been predicted if the tax was raised higher and there was a delay before the new rate was introduced.
Stuart Law, chief executive of property investment advice group Assetz, said: "This move is not likely to have a negative impact on the UK property market as speculative investors are unlikely to sell off their buy-to-let property once this new tax rate is introduced at midnight tonight."
But Richard Mannion, of Smith & Williamson, said: "It's unprecedented to have a change midway through the tax year.
"This will complicate the tax return for 2010-11 as it will mean pre and post Budget day gains will need to be reported separately."
The Chancellor also announced today that holiday lets would be classed as business assets for CGT, reversing a change introduced by the previous government.
Culinary experts in The Netherlands thought it was 'fresh' and 'tasty'
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