The Government has announced significant changes to the capital gains tax (CGT) rates that individuals, trusts and personal representatives (PRs) will pay. Interestingly, these were not announced in the main Budget speech but in subsequent Budget documentation.
Current CGT rates are dependent on the income tax rates paid by individuals; 18% is charged where a person is not a higher rate taxpayer and 28% where the person is a higher rate tax payer where their chargeable gains exceed the unused amount of the individual’s basic rate band. Under the present regime trustees, PRs and ATED related gains are also charged at 28%.
The Government has announced that for gains arising on or after 6 April 2016, the rates of 18% and 28% will be reduced to 10% and 20% respectively. These rates are significantly lower than those for income tax and could encourage investors to look at capital rather than income generating investments.
There are some exclusions; ATED rates remain at 28% and the new rates do not extend to chargeable gains on disposals of residential property (including any asset that has during ownership included a dwelling) which do not quality for principal private residence relief.
Entrepreneurs’ Relief will also be extended to long term investors in unlisted companies. This will provide a 10% rate of CGT for gains on newly issued shares in unlisted companies purchased on or after 17 March 2016, provided they are held for a minimum of three years from 6 April 2016, and subject to a separate lifetime limit of £10 million of gains.