CGT Boost to Investors

In his 2016 Budget speech George Osborne further demonstrated his commitment to encouraging savings and investment when he confirmed that investors would be penalised less heavily when divesting themselves of shares by announcing a significant cut in CGT

The basic rate of CGT from April 2016 has been slashed from 18% to 10%, whilst the higher rate falls from 28% to 20%.

CGT is a tax levied on the profit made when an individual sells or disposes of an asset that has increased in value, and its reduction means that investors will soon be able to keep more of the money they make outside of tax-free wrappers.

It’s the latest measure to improve the lot of the DIY investor and will be introduced alongside an introduction of £5,000 in tax-free dividends and a personal CGT allowance of £11,100.

The Treasury said the reduction in CGT was to make sure the next generation enjoy a ‘strong investment culture’.

‘make sure the next generation enjoy a ‘strong investment culture”

However, property investors and landlords will not see any benefit from the change as sales of residential property and carried interest (the share of profits or gains paid to asset managers) will be subjected to an eight percentage point surcharge – taking them back to the existing rate.

There was also a boon for long-term investors in unlisted companies, where anyone buying newly-issued shares in an unlisted company will have their CGT capped at 10% up to an allowance of £10million, provided they are kept for at least three years.

When viewed holistically, Mr Osborne has delivered a Budget to support and stimulate entrepreneurial investors, as total tax free allowances available on dividends, interest or capital growth now top £33,000 p.a.

These concessions are in addition to individual ISA and pension tax allowances and represent a strong incentive to savers and investors.

The reduction in CGT rates could make directly held stocks and share investments much more attractive, particularly if the investor is able to take income whilst paying the reduced rate of CGT rather than Income Tax at a higher marginal rate.