Planned tax rise threat to savers
By Andy Pearson
Investment expert Richard Croydon, divisional director of Brewin Dolphin’s Swansea office, has commented on speculation that June 22’s Emergency Budget could bring a rise in capital gains tax.
He says: “Traditionally it’s the prospect of an income tax rise that causes controversy and resentment among the electorate. But with the new Coalition barely a month old it is a proposed rise in capital gains tax (CGT) that is causing a stir.
“The Coalition agreement states that the Government will look ‘to seek a detailed agreement on taxing non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities’.
“In other words, CGT could be payable at 40pc or 50pc rather than the current flat rate of CGT of 18 per cent, which is paid on gains above the annual CGT allowance of £10,100.
“It is not just the rate of tax payable that is causing a stir. Reports have suggested that the tax-free CGT allowance could be cut to just £2,000 and this would see a million more investors caught by the CGT net.
“The changes described above would have a devastating impact on savers and buy-to-let investors.
“Not surprisingly, the Coalition’s plans have caused anger within the investment community but they have also triggered criticism from some Conservative backbench MPs. Brewin Dolphin has been lobbying hard to retain the tax exempt annual allowance and for some form of taper to be introduced to soften the blow for long-term savers, should the CGT rate rise as expected.
“Without any indexation or relief tax, CGT bills could more than double overnight. As even the Morningstar reported someone who invested £10,000 in the FTSE All Share in 1988 would currently face a tax bill of £9,910 based on the value of his or her shares having increased to £75,155. However, if CGT were increased to 40pc the tax bill would more than double to £22,022 .
“The Coalition’s plans are light on detail and this lack of information has caused many savers and landlords’ sleepless nights. We have been receiving calls from concerned clients who are unsure whether to act, ahead of the emergency Budget and we would stress to everyone worrying about CGT to seek independent financial advice before taking any action. Meanwhile, the buy-to-let community have hinted that rents could rise if CGT is increased.
“However, there could be light at the end of the tunnel. Reports suggest that the backlash has prompted the Coalition to have a second look at it proposals. They say that George Osborne, the Chancellor, might consider exemptions and is looking for ways to soften the blow for those who have saved and ‘done the right thing’.
“But other reports suggest that the Liberal Democrats are opposed to any watering down and so all eyes will be on the Emergency Budget on June 22.
“In the little time left you should consider taking advice on all the following – re-allocating assets between husbands and wives, considering the use of offshore bonds and re-basing portfolios now, to establish a higher book cost, even if it means paying tax at 18% and certainly using Bed and ISA allowance or Bed and SIPPing.
“While we recognise the measure is to block income tax avoidance, the irony is that the Treasury may well reap more in CGT at 18%, than if it is set at investors’ highest marginal rates. CGT is a voluntary tax and investors will refrain from crystallising gains if it is set at a punitive level.
“It is also important to remember the golden rule: do not let the tax tail wag the investment dog. In other words, don’t make an investment decision simply based on saving tax or avoiding paying it altogether.
“It makes sense to get expert financial help before making a move because any knee-jerk decision could prove a costly mistake.”
Tags: Brewin Dolphin, Capital Gains Tax, Emergency Budget, George Osborne, Richard Croydon, Swansea
