The Emergency Budget is not due to take place until next month but the new Chancellor is already coming under scrutiny for the proposed plans to taxation. A Sunday newspaper quoted various government aides saying that George Osborne was aware of the public concerns regarding the planned rise in capital gains tax.
The new Capital Gains Tax rate will be up to 40%, up from 18%. Investment house, Fidelity’s Tom Stevens commented: ” CGT always looked like an easy target given the discrepancy between the tax rate on earned income and capital gains so it is not surprising that it is first in the politicians’ sights.”
The increased tax rate is likely to have a more severe effect on savers which means there is likely to be an increase in people seeking tax-shelter investments such as ISAs. However, it is still unclear when this rise will come into effect. It could be applied from the date of the Emergency Budget or it may be held off until 6th April 2011. The least popular option, though, is likely to be the retrospective application of this tax rise where it will be effective from 6th April 2010.
The government has confirmed that there will be “generous exemptions for entrepreneurial business activities”. How these exemptions will be applied is likely to be amongst the main focus areas for the government over the next few weeks.
The aides told the Sunday Times: “There are a range of possible options on capital gains tax. It will be important to take the time to get this right.”