Gulf between Capital Gains Tax and Income Tax Presents Opportunities For High Earners

In a surprise move, the Chancellor left Capital Gains Tax (CGT) at 18% in the budget yesterday. This presents an excellent tax saving opportunity for higher earners as the top rate of income tax rises to 50% on April 6th.

With the top rate of income tax rising to 50% for those earning more than £150,000 from April 6th, there is now an opportunity for high earners to make considerable tax savings by taking advantage of the gulf between income tax and CGT.

Many experts have been surprised that the Chancellor did not raise CGT in yesterdays budget. At 18%, capital gains tax is considerably below the 50% income tax that many high earners will be charged. Many of these people will be tempted to save tax by maximising their capital gains, which will only be subject to 18% tax rather than being subject to a 50% levy.

Capital gains can be made when profits from investment properties, shares or other types of investments are realised. The fact that there is a £10,100 tax free allowance for capital gains makes a strategy based around these types of investments even more attractive.

Experts had predicted that CGT was set to rise to 30% in the budget yesterday, however it is highly likely that another budget will called shortly after the election, and capital gains tax could be revised upwards then.

In the meantime, the large disparity between CGT and the top rate of income tax is bound to be exploited by those high earners who are eager to minimise their tax bills.