Budget: New capital gains tax top rate
A new level of 28% for capital gains tax will be paid by higher rate taxpayers from midnight.
Chancellor George Osborne announced the new rate in his Budget speech, but it was not as high as some commentators expected following extended debate about potential changes.
At present, there is a flat rate of 18% to be paid when people sell, give away or dispose of shares or property.
This will remain for lower and middle income earners.
The move was welcomed by Labour's acting leader Harriet Harman.'Unfair'
The capital gains tax regime was described by the chancellor as one of the "most chaotic" tax regimes that it had inherited.
"Some of the richest people in this country have been able to pay less tax than the people who clean for them," he said.
End Quote Ronnie Ludwig Saffery Champness
Many who expected CGT to rise to 40% or 50% rushed through sales of second homes or share portfolios. Those individuals may now rue that decision”
He said that some people had taken advantage of the system by turning some of their income into capital and paying less tax as a result.
The chancellor expected the measure to bring in an extra £1bn - mainly through income tax as people would not shift income to capital.
"My concern has been to balance the competing demands of fairness, simplicity and competitiveness - and I believe my decision gets that balance right," he said.
However Ronnie Ludwig, of accountants Saffery Champness, said that some people who sold second homes recently, expecting a big capital gains tax rise, might not have done so had they known it would go up by 10 percentage points for some.
He described the change as "watered down" compared with what was being discussed in recent months.
"Many who expected capital gains tax to rise to 40% or 50% rushed through sales of second homes or share portfolios. Those individuals may now rue that decision," he said.
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Some higher rate taxpayers might also simply transfer properties and other capital into their spouse's name - if they were lower rate taxpayers - in order to avoid paying the 28% rate.Allowance
HM Revenue and Customs explains that you pay capital gains tax when you dispose of an asset you own, whether in the UK or overseas.
This can be when it is sold, given away to someone, transferred to someone else, exchanged for something else, or compensation received for it - such as an insurance payout after an asset has been destroyed.
The tax is paid on the gain - or profit, not the value of the asset itself. However, there is a tax-free allowance on the first £10,100 of any gains which would remain the same this year and rise with inflation in subsequent years, the chancellor announced.
Much of the debate in the build-up to the Budget was whether there would be a system which saw the rate come in steadily - a tapering system. However, the chancellor ruled this out - claiming it would add too much complexity.
Chris Sanger, head of tax policy at Ernst and Young accountants, said: "Overall, the top rate is not as high as many will have feared but the lack of indexation could mean that many will pay tax not on gains but on inflation."
The 10% 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.