22 June 2010 - BBC News
A new level of 28% for capital gains tax will be paid by higher
rate taxpayers from midnight.
Chancellor George Osborne announced the new rate in his Budget
speech, but it was not as high as some commentators expected
following extended debate about potential changes.
At present, there is a flat rate of 18% to be paid when people
sell, give away or dispose of shares or property. This will remain
for lower and middle income earners.
The capital gains tax regime was described by the chancellor as
one of the "most chaotic" tax regimes that it had inherited. "Some
of the richest people in this country have been able to pay less
tax than the people who clean for them," he said.
Many who expected CGT to rise to 40% or 50% rushed through sales
of second homes or share portfolios. Those individuals may now rue
that decision. He said that some people had taken advantage of the
system by turning some of their income into capital and paying less
tax as a result.
The chancellor expected the measure to bring in an extra £1bn -
mainly through income tax as people would not shift income to
capital. "My concern has been to balance the competing demands of
fairness, simplicity and competitiveness - and I believe my
decision gets that balance right," he said.
However Ronnie Ludwig, of accountants Saffery Champness, said
that some people who sold second homes recently, expecting a big
capital gains tax rise, might not have done so had they known it
would go up by 10 percentage points for some. He described the
change as "watered down" compared with what was being discussed in
recent months.
"Many who expected capital gains tax to rise to 40% or 50%
rushed through sales of second homes or share portfolios. Those
individuals may now rue that decision," he said.
Some higher rate taxpayers might also simply transfer properties
and other capital into their spouse's name - if they were lower
rate taxpayers - in order to avoid paying the 28% rate.
HM Revenue and Customs explains that you pay capital gains tax
when you dispose of an asset you own, whether in the UK or
overseas.
This can be when it is sold, given away to someone, transferred
to someone else, exchanged for something else, or compensation
received for it - such as an insurance payout after an asset has
been destroyed.
The tax is paid on the gain - or profit, not the value of the
asset itself. However, there is a tax-free allowance on the first
£10,100 of any gains which would remain the same this year and rise
with inflation in subsequent years, the chancellor announced.
Much of the debate in the build-up to the Budget was whether
there would be a system which saw the rate come in steadily - a
tapering system. However, the chancellor ruled this out - claiming
it would add too much complexity.