16 March 2016
The chancellor announces a 8 per cent decrease in capital gains tax rates on certain disposals to come into effect in just three weeks’ time.
Main CGT rates to go down
The chancellor announced that from 6 April 2016 the CGT rates will drop to 20 per cent for higher rate taxpayers and 10 per cent for basic rate taxpayers (currently 28 per cent and 18 per cent respectively). However, those selling residential property (other than your main home), such as second home owners and landlords, as well as those who have carried interest gains arising, will not benefit from the new lower rates.
Encouraging long term investment
The chancellor also announced the introduction of an extended entrepreneurs’ relief for long-term investors, allowing future gains on disposal of shares in unlisted trading companies, where shares have been subscribed for on or after 16 March 2016 and held for at least three years to be taxed at a rate of 10 per cent, subject to a lifetime limit of £10m (in addition to the usual entrepreneurs’ relief limit).
It remains to be seen how the new relief will interact with the existing Enterprise Investment Scheme (EIS) – gains on which are fully tax exempt as well as the investors qualifying for income tax relief at 30 per cent of the original investment.
The reduction of the CGT rate is welcome news as is the new extended entrepreneurs’ relief. It will be a further incentive to invest into UK businesses for the longer term, especially compared to income tax rates of up to 38.1 per cent or 45 per cent that would apply if on extracting cash in the forms of dividends or salary.
Landlords and second homeowners, however, yet again seem to be the ones losing out and may feel this is another blow having been hard hit in the 2015 Summer Budget.
If you would like to discuss how these announcements might affect you, please contact Kristina Volodeva or your usual RSM contact.