Capital gains tax: Why Thurleigh is deeply sceptical of a rise

Thurleigh's chief investment officer Charles MacKinnon (pictured) explains why the planned increase in capital gains tax could fail to generate revenue for the government.  

He writes:

At Thurleigh Investment Managers we focus on generating after-tax returns for our onshore taxable client base. Therefore the considerable speculation and uncertainty about potential changes to capital gains tax (CGT) in the 22 June Budget has led to a flurry of enquiries as to the most prudent actions.

Proposals being floated in the press are that the government will raise the CGT rate from the current 18% to 40% or 50%.

The Liberal Democrat manifesto suggested they would eliminate the tax-free allowance. There have also been suggestions of reintroducing taper relief (you pay less tax on assets held for a longer period) and also that investors of a certain age (that is, over retirement age) might not be taxed at the increased rate.

Cloud of uncertainty

Given this cloud of uncertainty, it is difficult to know exactly what to do for clients. Tax is a deeply personal event, and depends on an individuals’ exact status.
For example, those with carried-forward tax losses may be less directly impacted than those who have positions with significant capital gains.

Despite that, we have contacted all of our onshore clients to make them aware of the rumoured changes.
As a result, some have chosen to dispose of assets where they have significant capital gains in advance of the Budget. This means they would rather pay the 18% current rate than the potentially increased rate.

The disposals make the assumption that CGT will not be backdated to 40% for the whole tax year. It is quite possible that this will result in them paying more tax than they might have done, and it is certain that they will pay some CGT in January 2011.

Total tax take