Answers and insight into the new 8% reduction in Capital Gains Tax for higher rate and basic rate taxpayers, from Tom Stephenson, Trainee Adviser at COURTIERS
Transcript of video:
What is Capital Gains Tax?
Capital Gains Tax is tax due on the sale of assets. That includes investment shares or the sale of property but excludes the sale of a main residence, and Capital Gains Tax is due on any assets sold above the annual allowance for individuals, which currently stands at £11,100.
An 8% reduction in higher and basic rate Capital Gains Tax is a significant reduction. Were we expecting this?
The only tax break that we were expecting to come in from April 2016 was announced in the Summer Budget of last year, where George Osborne announced that for any taxation on dividends, the first £5,000 of income would be tax free, and that's effective for everyone. That was the only tax break we were expecting so this new 8% tax break for higher and basic rate tax payers was a really unexpected surprise. Fundamentally what this means is by bringing this new tax break, it means that Britain now has some of the lowest rates of Capital Gains Tax in Europe.
How can the Government afford to accommodate this reduction?
One way of ensuring that they can afford it is by excluding certain people from the new rates, so fundamentally they will not be included for landlords on the sale of buy-to-let properties, so they will still be paying the old rates of Capital Gains Tax; 28% for higher rate tax payers and 18% for basic rate tax payers. By excluding this group of people from the new rates they'll be able to claw back some of the lost revenue. It's estimated that the Treasury will lose £2.8bn, or it will cost the Treasury £2.8bn over the next five years by implementing these new CGT rates.
Who will benefit and how?
The Government estimates that 130,000 people are going to benefit from the new reduction in Capital Gains Tax. That includes both higher rate and basic rate tax payers, and the main reason why the Government brought in this reduction of Capital Gains Tax was to encourage investment in stocks and shares rather than in property. This means that it's going to effectively help businesses because it's been more attractive to invest in business and their assets and shares. By doing that, it's going to take the incentive to invest in properties as a 'safe haven' as it's seen as, and invest in companies which therefore is going to increase and help the economy.
With the new Capital Gains Tax reductions, everyone's going to benefit who are invested in stocks and shares because by seeing an 8% reduction in the tax that they would be likely to pay on any gains, it's going to mean that they're going to have more money to enjoy when they come to sell their assets and I think if anyone's got any questions on how this is going to affect them and their investments, then please speak to your COURTIERS Adviser and we'll be happy to discuss it with you.
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