Capital Gains Tax to 18% ?

[Jack o'Clubs]

Not clear from Darling's PBR speech which was very muddled, but the great and good in the BBC studio are interpreting the wording in the PBR as a cut in CGT to a flat rate of 18%. About the only way they could get round the private equity taper relief issue apparently. If right, that's good news for anyone currently paying 40% on their trading / investing and puts a bit of pressure on the s/bet firms...

 

[jacinto]

well,

wouldnt that be nice, a reduction of 50% of the tax bill.

all of a sudden my trading performance would have an immediate improvement without doing a thing

edit: say, a net 60 pips a week suddenly become 80

 

[Jack o'Clubs]

Very good news for traders

Chap from the treasury just confirmed that it is an 18% flat rate from here.

 

[jacinto]

Chap from the treasury just confirmed that it is an 18% flat rate from here.

it sounds and feels like getting a promotion and a wage increase :cheesy:

 

[Jack o'Clubs]

Puts spreadbet firms under some pressure. Where does their competitive advantage go from here, given the well known negatives of using them?

Double check the detail then a big short on London Capital in the morning? (via a CFD, naturally )

 

[TheBramble]

Puts spreadbet firms under some pressure. Where does their competitive advantage go from here

What competitive advantage?

Skewed and biased prices, infrequent, if any, and then largely accidental relationship to the underlying, major slippage on fills, rampant stop hunting and rogue spikes not seen in the underlying. And that’s totally discounting failure to fill on clients playing size and winning. All of this totally 3rd hand, but there has been too many making these claims for it not to have at least an element of truth.

The only advantage they have it would seem is that of convincing the gullible that they have a competitive advantage.

 

[Jack o'Clubs]

Page 7 (second bullet from bottom) and section 5.79 of the full PBR seems to make it clear. Good news indeed!

http://news.bbc.co.uk/1/shared/bsp/hi/pdfs/09_10_07_pbr_report.pdf

 

[TheBramble]

I wondered what the purpose of the reduction would be and reading the paper it seems to be squarely focused on making foreign investment more attractive.

However, foreign investment is not subject to UK CGT unless it is transacted through a UK agency.

So if CGT (or equivalent) is higher in your host country (or country of domicile or where you are deemed to be resident) than the new UK tariff it would make sense to switch your dealing through a UK agent. But having said that, for most ‘developed’ Western democracy countries, you’ll get hit by your host country tax service on your worldwide gains anyhow. I’m obviously missing the more technical aspects of the change and how this will attract foreign investment.

Any gurus out there able to provide a concise layman’s interpretation of intent?

 

[Jack o'Clubs]

Just another thought...

Even the LibDems are on R4 at the moment invoking the law of unintended consequences on this, ie everyone is going to be doing all they can to redefine 'income' as 'capital' to benefit from the 18% rate.

I wonder if our friends at HMRC are going to much stricter about definitions of trading 'income' than they seem to have been in the past (judged by threads passim on here)

 

[the blades]

What competitive advantage?
.

no stamp duty on equities, no tax on returns, no slippage experienced, prices easily calculable from the underlying......music from twilight zone cracks up....I've been here before.....AAHHRRGGHHHH!!!!!



UTB

PS - seriously, though I'm a spreadbet fan - the majority of my dealing is now through IB so the original topic sounds like fantastic news.

 

[TheBramble]

no stamp duty on equities, no tax on returns, no slippage experienced, prices easily calculable from the underlying......music from twilight zone cracks up....I've beem here before.....AAHHRRGGHHHH!!!!!



UTB

Yeah, sorry mate, I forgot you were one (the only one? LOL) of the bods making a profit from SBing. But even you have to admit you're pretty much a lone voice, or at least, one of a scant few.

That's probably more of a positive reflection on your trading skills compared with those who normally head of into SBing as their inauguration into trading than any misrepresentation by others of the SBs’ antics. It does tend to attract those with lower capitalisation and this normally comes hand-in-hand with little to no experience, so they’d likely get wiped regardless of platform or broker.

But all that said, there are many more stories and experiences from those who do trade and continue to trade of SBs doing all of those things I mentioned above than those who claim no such hanky panky.

That you manage to weather these tricks is a testament to your supreme powers over the forces of darkness. May you enjoy that extra amount HMRC allow you to hang onto as from next April.

On the other hand, you could always move to a more congenial location and enjoy closer to 100% of your gains…

 

[Lightning McQueen]

So if they're doing away with taper reliefs and going with a flat tax rate of 18% CGT then thats a direct assault on assets eg if I sold my house I have on let now, with the various taper reliefs available I would pay next to nowt in CGT...wait till after April 08 they could get over £10k off me...the basts!!!

No wonder they've been hoying about that story on private equity to feed envy in the masses.

I know this isn't the correct forum but anyone got any opinions.

Lightning

 

[donaldduke]

So if they're doing away with taper reliefs and going with a flat tax rate of 18% CGT then thats a direct assault on assets eg if I sold my house I have on let now, with the various taper reliefs available I would pay next to nowt in CGT...wait till after April 08 they could get over £10k off me...the basts!!!

No wonder they've been hoying about that story on private equity to feed envy in the masses.

I know this isn't the correct forum but anyone got any opinions.

Lightning

They are looking to collect £700 million a year from this, but i think it could be a lot more.

 

[the blades]

That's probably more of a positive reflection on your trading skills compared with those who normally head of into SBing

I'd love to agree it's all down to me, but as I've argued in the past if you're a "longer termer" then they'd be able to go with a winner rather than freeze him out. And when you're a "longer termer", a few tiny points go un noticed in the scheme of things.

I do agree that it's a starting point for novices, who are likely to crash and burn anyway. And what better than to blame your broker when you fail

UTB

 

[the blades]

So if they're doing away with taper reliefs and going with a flat tax rate of 18% CGT then thats a direct assault on assets eg if I sold my house I have on let now, with the various taper reliefs available I would pay next to nowt in CGT...wait till after April 08 they could get over £10k off me...the basts!!!

No wonder they've been hoying about that story on private equity to feed envy in the masses.

I know this isn't the correct forum but anyone got any opinions.

Lightning

aha, there has to be someone who loses for everyone who gains it seems? That'd be a shame for you fella. Thankfully I got out of the buy to let game recently.

UTB

 

[timsk]

I know this isn't the correct forum but anyone got any opinions.

Sorry Lightning, afraid not.
This may not be the correct thread (apologies to J.o.C.) but, hopefully it's the correct forum, albeit a separate query based on Darling's speech - this time re. inheritance tax . . .
My Mother-in-Law died about a year ago and my Father-in-Law died last July. Their estate, including their home, is valued in excess of the old £300K threshold, but below the new £600K threshold. Probate was granted yesterday after my wife and her two siblings wrote a large five figure cheque as recently as last week to Mr. Darling. They may yet have to write another one when their Dad's home is sold. Can they ask for a refund and/or will they be exempt from any outstanding IHT (under the old £300K limit) when the sale of their late father's home goes through?
Thanks for any input and apologies once again to J.o.C. for going off topic.
Tim.

 

[TheBramble]

So if they're doing away with taper reliefs and going with a flat tax rate of 18% CGT then thats a direct assault on assets eg if I sold my house I have on let now, with the various taper reliefs available I would pay next to nowt in CGT...wait till after April 08 they could get over £10k off me...the basts!!!

Don’t understand that. If you sold a property in the UK now which was not your primary residence, you would pay current rate of CGT (40%) on the profit you make - less your current £9,200 CGT allowance and less the taper relief which could be as high as 40% if you’ve owned the asset for 10 years. I think taper relief was bought in to replace indexation allowance less than 10 years ago, so I don’t think technically anybody can be claiming the full 40% at this moment.

As from next April, you will pay 18% CGT on the total profit less your CGT allowance.

If all of the above is correct, it’s a good deal. Assuming maximum taper relief: Gross Profit – CGT Allowance – Taper Relief on Gross Profit with a 40% tax on the net will always yield a lower tax amount than Gross Profit – CGT Allowance with an 18% tax on the net.

What am I missing?

 

[Jack o'Clubs]

Don’t understand that. If you sold a property in the UK now which was not your primary residence, you would pay current rate of CGT (40%) on the profit you make - less your current £9,200 CGT allowance and less the taper relief which could be as high as 40% if you’ve owned the asset for 10 years. I think taper relief was bought in to replace indexation allowance less than 10 years ago, so I don’t think technically anybody can be claiming the full 40% at this moment.

As from next April, you will pay 18% CGT on the total profit less your CGT allowance.

If all of the above is correct, it’s a good deal. Assuming maximum taper relief: Gross Profit – CGT Allowance – Taper Relief on Gross Profit with a 40% tax on the net will always yield a lower tax amount than Gross Profit – CGT Allowance with an 18% tax on the net.

What am I missing?

It must be bad news for someone as overall the Treasury has the CGT changes down as raising £900m or so and on Newsnight pundits were complaining that the changes were the equivalent of a sledgehammer to crack a nut (ie the specific problem of a few score multi-millionaire private equity carried interest beneficiaries, but stuffing a lot of others in the process).

I think the thing you're missing is that if you owned an asset before April '98 you still apply indexation allowance to it, so you'd get a much fuller relief.

Timsk - I'm pretty sure that the new IT rules apply to people 'alive' as of yesterday, so estates currently going through probate would not benefit. But I would certainly be taking professional advice on that - good luck.

 

[Lightning McQueen]

Don’t understand that. If you sold a property in the UK now which was not your primary residence, you would pay current rate of CGT (40%) on the profit you make - less your current £9,200 CGT allowance and less the taper relief which could be as high as 40% if you’ve owned the asset for 10 years. I think taper relief was bought in to replace indexation allowance less than 10 years ago, so I don’t think technically anybody can be claiming the full 40% at this moment.

As from next April, you will pay 18% CGT on the total profit less your CGT allowance.

If all of the above is correct, it’s a good deal. Assuming maximum taper relief: Gross Profit – CGT Allowance – Taper Relief on Gross Profit with a 40% tax on the net will always yield a lower tax amount than Gross Profit – CGT Allowance with an 18% tax on the net.

What am I missing?

Hello TheBramble

Jack's right, indexation is allowable as well as taper relief and I believe there's a third relief available also, which is rather complicated for which an accountant is required to sort them all out, basically if the property is owned over a long period of time the 40% CGT is almost wiped out, thats what I believe anyway after various jaunts around the net and the IR website, because I decided to keep I didnt take it any further. Nice one theblades, looks like you did ok there

Well if I keep the property come hell or high water at least when I do sell I'll be able to work out CGT liabilities myself and the number crunchers wont get a slice of the action, makes a change, for once

Now that the IR no longer recognize the money value differential between buying the asset and its sale, is long term holding of investment assets dead in the water?

Lightning

 

[donaldduke]

It must be bad news for someone as overall the Treasury has the CGT changes down as raising £900m or so and on Newsnight pundits were complaining that the changes were the equivalent of a sledgehammer to crack a nut (ie the specific problem of a few score multi-millionaire private equity carried interest beneficiaries, but stuffing a lot of others in the process).

Its bad news for business owners especially those who use a ltd company to reduce tax, you pay 22% each year in corporation tax (it was 19% but they are increasing it to 22%) and when you close your company any profits left over at the end are taxed again at 18%. Currently the CGT tax paid on closing your company after three years of ownership is 10% which aint too bad.

If things stay like this i will be closing my ltd (im currently paying 19%+10% tax) before April and begin trading under my own name going forward.

I expect to see many Ltd companies closing before April as owners take profits at 10% before the higher CGT rate comes in. Alot of these will be IT contracting companies with built up cash reserves in them.