Move ASAP to avoid CGT increase!

Owners of second homes and investors should move quickly if they plan to sell this year, following the news that the Government has confirmed in the Coalition Agreement that it will raise the rate of Capital Gains Tax (CGT) for non-business assets in its summer emergency budget.

It means that gains on non-business assets will be taxed at rates "similar or close to those applied to income" according to the announcement, which means a rate of 40% or 50% for top earners. The rise will help the Government to fund what it describes as "a substantial increase" in the income tax personal allowance from April 2011.

The new rate of CGT will be introduced in the new Government's emergency budget, which is likely to be in late June or early July. What is not known is when the increase will take effect - it could be backdated to take effect from 6th April 2010, or on the day of the budget, or on 6th April 2011. As it is unlikely that the new rate will be effective from 6th April, because that would amount to retrospective legislation, investors and their advisors are hoping to take advantage of the run-up to the budget to prepare for the change.

Anthony Ogley, Commercial Property Partner at Oxley & Coward Solicitors LLP, said: "Taking a hit and paying CGT now may well be the best move for many people. If you want to take action to limit the effect of what is predicted to be a massive rise in CGT rates, you must act immediately. It is important to complete the arrangements before the budget because, even if the increase does not take effect until 6th April 2011, the budget could well introduce anti-avoidance measures to prevent actions such as selling assets to a trust between the budget and the end of this tax year."

Whilst most commentators have been saying that the existing low rate of CGT is ‘too good to last', an increase in the tax rate will mean a return to taxing gains at the same rate as income, but without previous tax benefits afforded historically (See 1 below), at a time when inflation is showing signs of rising.

Oxley and Coward Solicitors LLP offers a free initial consultation, and is an expert in this field. Telephone 01709 510999 or e-mail property@oxcow.co.uk