Budget: CGT rise less than feared as Chancellor backs entrepreneurs
AS expected, Chancellor George Osborne today raised the level of Capital Gains Tax but in a nod to the wealth-creating talents of entrepreneurs, he increased their CGT relief.
Capital Gains Tax remains at 18% for low and middle-income savers but from midnight, higher rate taxpayers will pay 28%.
Stephen Sandys, director at Ernst & Young in Birmingham, said: “There have been modest moves to encourage enterprise in today’s Budget.
“The biggest incentive will be the increase in entrepreneurs’ relief from Capital Gains Tax from £2m of gains to £5m of gains.
“In addition, the small companies rate of corporation tax is to be reduced to 20% and for those businesses starting up in the right parts of the country there will also be a relief for up to £5,000 of National Insurance per new employee. In all, a nod to entrepreneurs to show they are still appreciated.”
Yolande Barnes, head of residential research at property advisor Savills, said the limiting of the rate to 28% for upper rate taxpayers was “a welcome deviation from the feared 40% or 50%”.
“Also to be welcomed is its introduction from midnight tonight,” she said.
“A delayed or phased introduction would have led to second home owners and investors selling to beat the deadline and might have increased supply, depressing prices.
“For a higher rate taxpayer who bought the average priced home 10 years ago, as a second home or investment, and who sells it tomorrow, the changes will mean that they pay an extra £7,500 compared to what they would have paid yesterday. This represents an extra 56% in tax on the £85,000 gain.
“Longer term, the raising of Capital Gains Tax may discourage individual investors who make up the vast majority of residential property landlords.
“Although the luxury of a flat 18% CGT was only in place for two years, its demise removes the incentive for investors to gear up against the expectation of significant capital growth.”
Simon Walker, chief executive of the British Private Equity and Venture Capital Association, added: “The sharp rise in Capital Gains Tax will discourage investment in this country and leave the UK in an uncompetitive international position. This has to be the cause of deep concern.
“Entrepreneur’s relief, as currently constituted, does not cover those involved in the investment chain that brings a new idea to the market and its scope should be reviewed by ministers.
“It would be of real value if the Chancellor made it clear that no further increases in this tax regime will be introduced in this Parliament.
“Certainty is the essential foundation for innovation. Without this, venture capital will be severely constrained by the creation of the new 28% rate.”
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