TAX NEWS - June 2010

UK Tax: Possible changes to the rates of capital gains tax for non-business assets

UK Emergency Budget is expected to announce measures to align the rates of capital gains tax for 'non-business' assets more closely with rates applying to income. While there has been much speculation and opinion provided by commentators and backbench MPs, the Coalition has repeatedly said that commentators should wait for the Budget before judging the measure.

The initial implication was that gains on non-business assets would be taxed at income tax rates. Subsequently there appears to have been a softening in approach and it may be that the Budget will introduce a regime of graduated rates of up to 50%. It is not clear whether there will be any reintroduction of taper relief or even a rebasing provision.

There is no indication as to when these changes will apply from. It could be they will apply to all disposals after Budget day or that their introduction will be deferred until 6 April 2011 (with or without any forestalling measures).

Those likely to be impacted by the changes include employee shareholders in quoted companies or other shareholders not qualifying for entrepreneurs relief (although there is some pressure to bring these within a more favourable business asset regime), owners of second homes and buy to let properties and owners of carried interest in some private equity partnerships.

As a result of the potential changes some taxpayers are reviewing their asset portfolio and considering the impact of tax on their retention and disposal strategy. If you are concerned by the uncertainty in respect of the applicable tax rate and its effect on your circumstances, then as a matter of urgency you may wish to speak to your usual Ernst & Young advisor or the contact listed below in order to ascertain whether it may be possible or appropriate to trigger a disposal under the existing regime at 18%.