Tax & Accounting News

Lower CGT hike may herald avoidance crackdown

01/07/2010

The lower-than-expected increase in Capital Gains Tax (CGT) in the recent Emergency Budget may prompt new moves from HM Revenue and Customs (HMRC) to make it more difficult to reclassify income as capital gains.

While the rate for higher earners did increase, to 28 per cent, this fell short of predictions that it would rise to the same level as income tax, meaning that reclassifying income may still be an attractive option for some taxpayers.

Since individuals may still be tempted to convert company profits from income to capital, or create artificial losses to minimise the amount of CGT due, HMRC is likely to look at strengthening the rules that are already in place, according to one leading expert.

John Whiting, tax policy director at the Chartered Institute of Taxation, told Accountancy Age magazine that, while he considered the increase to 28 per cent a ‘sensible and pragmatic move’, it may lead to HMRC updating and clarifying its definition of what constitutes a capital gain.

The rate remained at 18 per cent for lower-rate taxpayers, while the 10 per cent rate for entrepreneurs will be extended to the first £5million of gains. The annual personal allowance of £10,100 per annum also remained unchanged.

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