The way in which the government dealt with Capital Gains tax is one of the most important areas for people who are trading in Contracts for Difference on any sort of scale. Overall the budget has actually been far better than feared.
Before grumbling too much at the capital gains tax changes it is a good idea to consider what was originally proposed. Firstly there was going to be a harmonisation of the rates to the marginal income tax rate. This technical sounding change would have meant a capital gains tax increase in some cases from 18% to 50%. This was a large increase. This would have been made larger by a slashing of the allowance to £1,000 or £2,000 from its present level of a shade over £10,000. As well as increasing the rate would also have brought many of the less regular traders in to the scope of Capital Gains Tax.
Well the capital gains allowance is going to stay the same. In inflation adjusted terms it is a cut, as it is not moving up with prices or earnings, but it is still better than being slashed to £1,000.
For basic rate taxpayers there is also no change. Although the change in tax rate from 18% to 20% would have been small, it is still good that the rate has not changed.
For higher rate tax payers however the rate does move up. However while it has moved from 18% of the gains to 28%, it is still nowhere near the rise to 40% or in some cases 50% that was being put forward.
The government has seen sense on this, not from the point of view of investors, but for the raising of revenue – as a 40% capital gains tax rate would have sharply reduced the amount of investment in the economy and so capital gains being taxed. No one likes paying tax, but it is fair to say about this budget that just about everyone is feeling the pain.