10% capital gains tax rise for higher rate payers
Higher-rate taxpayers will face a 10% hike in the rate at which they pay capital gains tax, the Chancellor announced today.
From midnight tonight, the rate at which the tax is charged on non-business assets will increase from 18% to 28% for higher earners.
The move aims to narrow the gap between the rate higher earners pay on CGT and the one they pay on income tax to cut down on income tax avoidance.
It is thought that around £1 billion in tax revenues is lost every year through people taking income as capital gains.
The threshold at which the tax kicks in will remain at £10,100 this year, and will rise in line with inflation in future years.
Basic rate taxpayers will continue to pay CGT at 18%, while the 10% rate for entrepreneurs will apply to the first £5 million of lifetime gains they make, up from the current level of £2 million.
The Government estimates that the move will boost revenues by £1 billion, although George Osborne said much of the increase would come from additional income tax receipts.
He added that he had stopped short of raising the rate at which the tax is paid above 28%, as research had suggested this would actually lead to a fall in revenues.
Mr Osborne also did not bow to pressure to re-introduce some form of taper relief to reduce the amount of tax paid by people who have held assets for longer periods, in order to keep the system simple.
Despite the lack of taper relief, the increase in the rate at which the CGT is charged is likely to come as a relief to many investors, as it had been widely predicted that it would be increased to 40% or even 50%.