How will the Capital Gains Tax changes affect you?

By Fergal Barry-Murphy. Published on March 3, 2008 This post currently has no comments.

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There are a number of significant changes to taxation from April. Of all the changes, it is likely to be the amendments to how Capital Gains Tax (CGT) will be charged that will have the most affect, and be the most controversial. Here, we take a closer look.

One thing that is already clear about the forthcoming CGT changes is that there will be both winners and losers. While there are some who will lose out because of the changes, others will most certainly gain. Which side of the fence you are on will depend on your current assets and investments, and what you plan to do with your money in the future.

For the normal British consumer, next month’s changes should simplify the CGT situation a lot. Instead of paying it at 22% or 40%, depending on income, with the first £9,200 exempt from tax, you will pay a flat 18% rate. This will replace the more complicated tapered system where rates would change depending on how long you held your assets and other factors.

Clear winners are property investors and stock market investment who currently pay 40% on any gains. The new 18% rate will obviously be much lower for them. In general, anyone selling a second home should stand to gain from next month’s changes, and it is certainly good news if you have money invested in stocks and shares.

However, not everyone is to gain. On the flip side, it is definitely bad news for workers in share option schemes. They will face Capital Gains Tax on any profits made from these shares at a rate of 18%, as opposed to the current rate of 5%.

The changes have also been roundly criticised by business and especially representatives of small business. Under current rules, small businesses only pay 10% Capital Gains Tax. This will go up to 18% next month, though the current 10% rate will still be applied to the first £1 million of the sale of any business. However, this is seen as scant consolation by many business owners.

For individual homeowners and investors the changes may not be such bad news, in fact they may be good news. The likelihood is that anyone paying the higher rate of tax will save on CGT payments, perhaps significantly. It will also mean that many people on the standard rate of tax will be better off. However, some may lose out depending on they type of assets they have and how long they have held them for.

If you have money invested in stocks and shares you will also be better off as you will pay CGT at just 18%, instead of a minimum of 22%. And this has to be good news for investors given the current turbulence in the markets.

The amendment to Capital Gains Tax is one of a number of changes aimed at simplifying the tax system. There will also be significant changes to inheritance tax and to ISAs which we have dealt with previously.

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