Emergency Budget - 22 June

Accountants RSM Tenon give their take on the forthcoming budget.

It only seems five minutes ago since the last budget but the political landscape has changed out of all recognition. The early indications are that the coalition intends to pursue a radical tax agenda.

For many people the most important announcements will be on capital gains tax (CGT). We know that rates will go up but we need the answers to some specific questions.

The 18% rate will undoubtedly increase, but by how much? Early speculation was that gains would be taxed at income tax rates, which would have meant for some people a 50% rate. It now looks possible that there will be some compromise on this and that the rate might instead increase to something like 30%.

CGT rates are normally set for a whole tax year. It is possible that rates could be put up immediately on Budget day, but we think that it is more likely that they will increase from 6 April 2011. We may, however, see some anti-avoidance provisions in the Budget to stop people artificially triggering gains before 6 April in order to benefit from the current rates.

The government has said that it wants to give incentives for genuine entrepreneurial activity. What will this mean in practice? Definitions will be all important here. We suspect that the definition will be narrow.

Should the capital gain tax system give any allowance for inflation – if it doesn’t then people will be taxed on paper gains and not on true economic gains. While rates are low the absence of inflation protection is not a great problem but if rates do go up significantly then it will be essential that this issue is recognised.

If you hold significant investment assets – second homes, buy to let properties, stocks and shares etc – you are almost certainly facing very much larger tax bills when you come to sell. There are things that can be done to help manage the tax rate but you will need to act quickly.