Helen Tandy (Partner, Castlefield Advisory Partners) and Olivia Bowen (Partner, Castlefield Advisory Partners)
Capital gains tax (CGT) is charged on the annual profit made from the sale of assets - e.g. shares or a second home - if the total profit is greater than an individual's current CGT allowance.
The annual CGT allowance from 6 April 2016 will be £11,100.
In the recent Budget, the Chancellor announced changes to CGT which will be cut from:
28% to 20% for higher rate tax payers
18% to 10% for basic rate taxpayers
Chargeable gains on residential property that does not qualify for Private Residence Relief will continue to be taxed at 28% and 18% respectively (e.g. second homes or buy-to-let properties). Individuals involved in investment management for private equity or other investment funds who receive “carried interest” will also continue to be taxed at 28% and 18%. The intention behind this is to encourage savers to choose to invest in stocks and shares rather than property, because of high property prices in much of the UK.
Entrepreneur’s relief will be extended to external investors who invest in unlisted trading companies. The individual investor will benefit from a CGT rate of 10% on gains accruing on the disposal of ordinary shares in an unlisted trading company. The shares have to have been newly issued to the claimant and acquired after 16 March 2016. They also have to have been owned for a period of at least three years starting from 6 April 2016 to qualify for this relief. There will be a lifetime cap of £10million of qualifying gains.
Whilst we welcome these changes in some respects as they are likely to benefit our clients, with a regular review of your investments and careful use of annual allowances such as ISAs, such tax can often be avoided.