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Capital Gains Traps

Recently both Carter Jonas and UHY have been experiencing an increasing number of instructions and queries relating to Capital Gains Tax (CGT) rate reductions for non-residential property from 28% to 20%. Everyone knows that on 6 April 2016 the headline rate of capital gain tax dropped to 20%, right? There are of course a few exceptions to the headline rate, such as residential property and ATED (annual tax on enveloped dwellings) gains, but this article discusses that the new rate is not yet enshrined in law.

The changes in rate have been included in the Finance Bill 2016 and, like any other prospective Act of Parliament, that Bill must pass through the House of Commons and the House of Lords and then receive Royal Assent before it becomes law. That Royal Assent would normally be given in late June or early July, and certainly before Parliament’s summer recess (or as school children normally term it, summer holiday) on 21 July.

But 2016 is not a normal year.

We’ve voted to leave the EU. David Cameron has resigned and we’re now governed by our second ever female PM, Theresa May. There are calls being made from the opposition for a general election, with Mrs May’s non election (by either the public at large, or even the members of her party) being seen as a lack of mandate to lead the country. And in her first act as Prime Minister a cabinet reshuffle has seen long standing Chancellor George Osborne replaced by Philip Hammond.

In the immediate aftermath of Brexit Mr Osborne indicated that he didn’t feel the need for an emergency Budget and gave the impression he was looking to be a steady hand on the rudder, looking to offer a degree of stability and predictability in these uncertain times. Mr Hammond has echoed those sentiments following his appointment and so the possibility of a further 2016 Budget and Finance Bill remains mercifully small. Its probably also fair to imagine that even if a general election is called, the inevitable emergency Budget which would follow probably won’t happen much or any sooner than next March when the next Budget speech is due anyway.

Nonetheless, for as long as the Finance Bill 2016 remains a Bill, there is the possibility it could be thrown out or superseded without ever making it into the statute books.So it’s possible that gains made in expectation of a 20% tax rate in the current tax year could become taxable at rates we all believed were consigned to history.

Ok, it’s quite a stretch to imagine what would effectively be a retrospective change in tax rate. Even HMRC have published guidance reflecting the change of rates, and surely our court system would be sympathetic to a failure by a Finance Bill to effect the change?

But how big does your capital gain have to be before the 8% difference in rates starts to leave you biting your fingernails?

For more information or to discuss your tax position please contact Graham Boar on 01462 687333 or via his email, g.boar@uhy-uk.com.  Graham is a tax director at UHY Hacker Young who, as well as being a Chartered Accountant is a full member of STEP (the Society of Trust and Estate Practitioners).

To discuss valuation requirements for Capital Gains Tax purposes please contact Mark Russell on 01223 346 628 (mark.russell@carterjonas.co.uk) or Jack Sharpe on 01223 326 814 (jack.sharpe@carterjonas.co.uk).

 

CJ

 

Posted in: Tax

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