From midnight, taxpayers on higher rates will pay 28 per cent on their capital gains.
The Annual Exempt Amount for capital gains tax will remain at £10,100 this year and will continue to rise with inflation in future years.
To promote enterprise, the 10 per cent capital gains tax rate for entrepreneurs, which currently applies to the first £2m of qualifying gains made over a lifetime, will be extended to the first £5m of lifetime gains.
The budget changes mean that:
- the capital gains of the majority of taxpayers are protected;
- we have a top rate that is in line with our international competitors;
- we keep the system simple and easy for any taxpayer to understand;
- we reduce the incentive to convert income to capital gains.
It is revealing that the great majority of the almost £1 billion of extra receipts we expect to see as a result of this change will come from additional income tax payments.
Julie Patterson, Director of Authorised Funds & Tax at the IMA, said:
"The Chancellor's decision to maintain the capital gains tax threshold at £10,100 is very welcome. This provides an important buffer for those on modest to middle incomes against capital gains arising simply from inflation. It keeps thousands of basic rate tax payers out of complex annual tax calculations as they draw down their savings during retirement. Preserving the threshold sends an important message that people should continue to be encouraged to save for the long term."
The increase in capital gains tax for higher rate tax payers to 28% will have little or no impact on authorised funds, so the majority of investors in funds will remain unaffected. Authorised funds will remain exempt from capital gains tax on any gains made in the fund.
The majority of investors can manage their annual exemption to ensure that they do not pay CGT when they dispose of their investments. Pension funds, charities and individual investors holding their fund investments in ISAs, personal pension arrangements or offshore funds continue to be exempt from CGT on any gains made on investments.
David Whittaker, managing director of Mortgages For Business, said:
“While adjusting the threshold for CGT will raise more revenue this change affect more people than a straight hike in rates. But whichever option the government decided upon we knew the negative impact on the UK’s entrepreneurs and investors would be felt deeply.
"By increasing CGT the government is taking money out of the economy. In the property market the liquidity pool is still relatively parched. A healthy property market tends to mean a healthy economy. But by taking more cash out of the pockets of these investors the government is threatening to stunt the growth we expected to see in 2011.
"The rise in CGT combined with the income tax landlords already pay on rent means a double blow for these investors. They’ll be left asking what they did to deserve such punishment. Professional property investors will now have to work much more efficiently in order to maximise the amount of money they are able to take home from their portfolios.
"Maximising allowances and ensuring rental income is as tax neutral as possible will go a long way to help achieving this. Landlords will need to assess their portfolios thoroughly in order to realise where they can offset further and minimise the amount they have to shell out to the tax man.”
Paul Hunt, managing director of Phoebus Software said:
"Bringing CAPITAL GAINS TAX completely into line with income tax rates would have made property investors much more cautious about expanding their portfolios so it’s good it didn’t go up the whole way; although a lot of vested interests will still complain over the coming weeks. But with the deficit to tackle, property investors couldn’t hope for much more.
"The good news for landlords is that the inevitable cuts to the SOCIAL HOUSING BUDGET will perpetuate the housing shortfall. We heard about housing benefit being reformed, with a maximum limit of £400 a week, in a package saving £1.8bn a year by the end of the Parliament, but there’ll be more to come.
"That will support house prices and boost the rental market, raising rents in the long run."
Jonathan Moore, director of easyroommate.co.uk, comments:
"The good news is that, while a Capital Gains Tax increases may be bad news for many professional landlords, live-in landlords have emerged unscathed. In fact, they should see an increase in tenant demand in the short-term.
"With social housing likely to be in the firing line for future funding cuts, and investment in the private rented sector via buy-to-let likely to feel the effects of a higher Capital Gains tax, flatsharing will play an vital role in the housing market, providing affordable accommodation for the UK’s growing population.”
David Smith, senior partner at estate agents Carter Jonas, comments:
"The rise in CGT is unlikely to have a detrimental effect on a property market that is still in the early stages of a recovery.
"Although tax rises are never good news, what the Government has achieved by announcing an increase in CGT immediately, is avoided panic selling by landlords and people with second homes, which could have seen the market flooded with properties as investors desperately tried to sell before the higher rate tax kicked in.
"Now investors will have to take a more measured and longer term view if they're still planning to reduce the size of their property portfo
