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| Mitigate new CGT liabilities by knowing where to put your cash |
The new CGT rules announced in the Emergency Budget were not as draconian as some had feared, but there was still a sting in the tail for higher rate taxpayers.There was speculation that George Osborne would slash the annual exemption from £10,100 to just £2,000, but in the event he left it unchanged. This allows most small investors to stay out of the net, as was the case in 2009 when only 1 out of every 131 taxpayers had to pay CGT.
The other main concern was that the tax rate would be increased to 40%, but the Chancellor decided against this as Treasury forecasts suggested that it would actually reduce the total revenue. His solution was to introduce a new 28% rate for those in the higher rate income tax bracket, with basic rate taxpayers continuing to pay at 18%.
“This announcement is good news for average long-term savers who would have been caught in the CGT net for relatively small gains if the allowance had been lowered or the rate increased,” says Gary Shaughnessy, UK managing director of Fidelity International.
The existing rate of CGT of 18% will apply where total taxable income and gains are less than the higher rate threshold of £37,400. Those whose income and gains exceed this figure will pay the higher rate of 28% on the excess. Gains realised before the new rules were introduced on June 23rd will not be included in this calculation.
There are various things that investors can do to minimise their CGT liability. One option is to strategically sell assets in different tax years so as to make full use of their annual exemption of £10,100. Married couples can transfer assets between them free of tax so that they each use their exemption. It also makes sense for people to shelter as much as they can in their ISAs and pensions.
“This Budget reinforces the importance of ISAs which provide investors with a tax-free way of saving. Investors who fail to make use of their ISA allowance simply throw away their hard earned money on unnecessary taxes,” notes Shaughnessy.
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