Emergency Budget - maybe Capital Gains Tax changes will not be so bad after all
Nick Clegg gave an interview on Radio 4 during which he said, "It is impossible to start picking off whether you believe in indexation, so you don't tax the increase in the value of assets through inflation, and you have to couple that with consideration of what rates you use." Meanwhile Vince Cable was interviewed on Radio 5 and he referred to people being concerned over taxation of gains due to inflation and implied that this would be sorted out in the Budget. He was, though, adamant that rates on non-business assets at least had to rise to stop people turning income into capital and avoiding tax.
Does this mean we are going back to the old system of costs plus relief for inflation based on the RPI? This may well be a fairer system if rates rise but it does involve a lot of detailed record keeping - you have to keep track of every share movement and record the inflation relief for each separate acquisition. On that basis there will also need to be detailed rules for establishing how you allocate costs on a sale. Somehow that does not sound like simpler legislation when compared with the current system of pooling all acquisitions and arriving at an average cost.
The alternative presumably would be to re-base all assets at the start of the new regime (the way we did way back in 1982, some of you may recall).
This is all still speculation but it sounds hopeful that the proposals will not be as bad as was first feared. It looks certain though that they will not be as good as now.
We will be blogging on SME Plus Blog and Tax Plus Blog on Budget day. If you do not already subscribe to our blogs click here for SME Plus Blog or here for Tax Plus Blog to ensure you get our comment and analysis as and when it happens.
Cathy Corns is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Cathy you can call her on 01908 605552.
Date: 3rd June, 2010
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