Budget CGT hike will clash with current tax rules, says S&W

The decision to raise capital gains tax (CGT) to 28% for higher rate taxpayers from midnight is unprecedented and will clash with existing legislation, Smith & Williamson's national tax director has said.

Richard Mannion said never before had CGT been altered mid-tax year, and he questioned how it would be implemented overnight.

'There will be a practical problem instigating it,' he said. 'I'd expected it to come in next April, and there is no precedent for introducing a CGT rise in the middle of the year.

'It is a hurdle and will grate with current legislation.'

Chancellor George Osborne estimated the change would raise £1 billion a year in additional revenues for the Treasury.

Osborne (pictured) said low and middle rate income taxpayers would continue to pay the current 18% CGT rate.

Osborne said the change in the headline rate would target the wealthy. 'Some of the richest have paid less than the people who clean for them,' he said. 'It is therefore right that CGT should increase to create a fairer tax system.'

Mannion also welcomed the move by the chancellor to extend the entrepreneurs relief lifetime limit of 10% CGT to their first £5 million, up from £2 million.

'That is a shock and it makes the relief much more useful for entrepreneurs so it is a plus,' he said.

The chancellor said there would be no indexation or taper relief allowance introduced as the complexity would be 'self-defeating.' However, he failed to provide additional relief for those in retirement.

The annual exemption rate will remain at £10,100 this year and then rise in line with inflation.

Julie Patterson, director of authorised funds and tax at the Investment Management Association, said the decision to maintain the capital gains tax threshold was welcome and provided a buffer for those on modest to middle incomes.