Capital Gains Tax – higher rate tax payers breathe sigh of relief

Capital Gains Tax – higher rate tax payers breathe sigh of relief

22 June 2010 / by Rachel Mason

David Doulton, director at Fair Investment Company, comments on the announcement that CGT will be raised to 28% for higher tax payers.

As George Osborne said, this Budget is the 'unavoidable Budget', and tax rises had to happen in order to pay back the huge deficit. The country was prepared for the worst, so the announcement of a rise in Capital Gains Tax to 28% for higher tax payers actually seems like a very workable change.

By raising CGT for higher tax payers the government is trying to close off the 'loophole', whereby higher rate tax payers are better off investing in assets that attract CGT at 18% with a personal allowance rather than pay 40% on an income generating asset. 

Obviously CGT has not been raised up to 50% as speculated, and the exemption allowance has not gone down to £2,500 like the Lib Dems proposed, so many higher rate tax payers will be breathing a sigh of relief and may well still take advantage of the fact that CGT is still lower than their income tax rate. To close the loop hole off completely, maybe Osborne should have gone ahead with a bigger rise.

Nevertheless, what he has done will still do something to close the gap due to the fact that CGT for low and middle income savers will remain at 18%. This at least means that if higher rate tax payers do choose to invest in assets rather than pay 40% on an income generating asset, they will be paying more tax than a lower or middle earner paying 18% CGT and 20% income tax. And long term savers, like older people with buy to let properties used for retirement planning who are subject to CGT when the sell assets, will not be hit by the rise.