View the article online at http://citywire.co.uk/money/article/a892026
Capital gains tax cut cheers investors, annoys landlords
The icing on the Budget cake for investors was a cut in capital gains tax although it does not apply to landlords and fund managers.
In addition to unveiling the Lifetime ISA, the chancellor pleased investors of all ages with a big cut in capital gains tax.
Chancellor George Osborne slashed CGT rates in his eighth Budget, with the headline rate of 28% paid by higher rate income taxpayers being cut to 20% and reduced from 18% to 10% for basic rate taxpayers.
‘The rates will come into effect in three weeks’ time. The old rates will be kept in place for gains on residential property and carried interest,’ said Osborne. Carried interest is the term applied to the gains made by private equity fund managers investing in unquoted companies.
‘The chancellor has made it even more attractive to create wealth through capital gains rather than earnings,’ said Dermot Callinan of accountants KPMG.
‘The details are to follow, but this will enable all investors to benefit by realising the profit on the sale of shares and other assets at the reduced rate of tax. Not only do these very substantial reductions bring us close to the position in 2008, they are also forecast to cost the Treasury £2.8 billion over the next five years,’ said Callinan.
Online stockbroker The Share Centre calculated that the CGT changes, the increase in the ISA allowance to £20,000 next year and the introduction of the Lifetime ISA ‘amounts to a £5 billion boost for savings and investments’.
Richard Stone, chief executive of The Share Centre, said it was ‘a substantial commitment to encouraging more people to invest and save for their own and their family’s futures’.
Arguably it is a blow for property investors, however, who are excluded from the reduced CGT rates and who have already been subject to a reduction in the amount of mortgage interest relief they can claim and higher levels of stamp duty on buy-to-let properties.
Nimesh Shah of accountants Blick Rothenberg said landlords could be forced to set up corporate structures around their property investments to protect them from higher rates of tax.
While the sale of a second property by a higher rate taxpayer would still be liable to CGT at 28%, the sale of shares in a company that owns a residential property, or portfolio of properties, would pay 20%.
‘The major reforms to CGT…will encourage investors in residential property to use company structures – exactly what the government was trying to prevent when they started to reform property taxation in 2012 to discourage corporate ownership of residential property,’ said Shah.
Shah said the new rules could ‘quite easily lead to a future market among investors to trade shares in companies owning residential properties’.
‘The government needs to be mindful of the latest policy measures, which are certain to have a significant bearing on taxpayers’ behaviour to use corporate structures,’ he said.
David Kilshaw of accountants Ernst & Young complained: 'Once again the chancellor has chosen to make private equity fund managers the bogeyman of his Budget by excluding them from the cut in CGT rates which will apply to all other disposals of stocks and shares.'
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by Gavin Lumsden on Oct 23, 2016 at 00:01