The 2016 Budget – Capital Taxes

The 2016 Budget was an unusual one for those affected by or interested in Capital Taxation raised by Inheritance Tax (IHT) and Capital Gains Tax (SFP).

IHT hardly had a mention in the Budget. The big news, after all, was in the 2015 Budget when the Residence Nil Rate Band (RNRB) was announced to supplement the Nil Rate Band (NRB) though the RNRB will not benefit anyone for another year as this will only help couples, or civil partners, where the second of them dies on or after the 6th of April 2017.  However part of the Finance Act 2016 will include the remaining provisions, rules if you will, about how large parts of the RNRB will work in practice.  Suffice it to say it will be complicated to apply and probably will help fewer people than you might think because of the way these rules have been drafted.  Surely that was not really the Government’s overall intention?

CGT by contrast was mentioned by the bucket load.  So the CGT highlights are:-

  • The rates of CGT are being reduced from 28% to 20% and from 18% to 10% from the 6th of April 2016 (so different short term CGT planning considerations will apply). However for those owning residential properties the old CGT rates will still apply.  Otherwise where CGT does apply this is a generous change.  So will we see the return of schemes where CGT is the tax of choice rather than Income Tax?
  • Entrepreneurs Relief (ER) for CGT has also been changed. ER was introduced in 2008 and successive Chancellors have felt the need to tinker with the rules of how ER applies, and this year is no exception.  The qualifying conditions you have to meet so that ER applies have been altered.  This seems to be saying that ER is a better way to encourage investors in new businesses.  In contrast the Enterprise Investment Schemes looks as if it will be phased out.
  • There have also been changes to the, comparatively new, Employee Shareholder Status. A CGT cap has been introduced forwards after the 16th of March 2016 (Budget Day) of £100,000.

For further advice on Inheritance Tax and Capital Gains Tax contact Steve Pitts on or call 01562 820575.

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