Happy Birthday to Capital Gains Tax! But changes are afoot....

Capital Gains Tax or CGT for short, celebrated its 50th birthday this year.

It was first introduced in 1965 by James Callaghan to stop people avoiding income tax by changing their income into capital, which was tax free until 1965.

Since 1965 there have been a myriad of allowances, exemptions, reliefs and tax rates. There are still several reliefs available such as the well known entrepreneurs relief, EIS deferral relief, rollover relief, holdover relief, incorporation relief, indexation allowance (for companies) and more......apparently tax doesn’t have to be taxing.......

Whilst there are many reliefs available it was astonishing to read recently that the CGT received by HMRC in 2013/14 was £5.5bn, which was an increase from £3.8bn the previous year. This figure is expected to rise over the forthcoming years and it is imperative that those individuals with assets standing at a capital gain do consider if the potential CGT can be reduced before they sell the asset. This could be something as simple as moving assets between spouses or increasing base costs of shares by using their annual exemption each year.

It was also interesting to read that men pay more CGT than women (57% to 43%) which may suggest that married couples are not taking advantage of the opportunity to move assets between each other to use up CGT allowances.

Finally, it was announced in the Autumn Statement that the Government were going to launch a consultation on capital distributions from owner managed businesses. Due to the CGT rate being lower than the income tax rate, many individuals take advantage of this by withdrawing monies from their own companies as capital rather than income, thus saving significant amounts of tax. The Government are keen to prevent opportunities for income to be converted to capital to prevent a tax advantage and therefore any window of opportunity to save tax by say considering a reduction in share capital or a company purchase of own shares, may be short lived.

If you wish to speak to a member of our tax team about your CGT position, then for Darlington call Alan Moore or Lee Watson (01325 349700), for Durham call Nicola Bellerby or Lee Watson (0191 384 2244) and for York call Alan Moore or Graham Richardson (01904 784400).