Overall, the budget delivered few surprises and almost everyone expects to pay a bit more tax and receive lower benefits for some time to come. The surprise, if there was one, was that Capital Gains Tax did not increase by as much as was expected.
CGT is, to some extent, a voluntary tax; rarely does someone have to sell an asset which has increased in value, they can choose to keep it. Also, with generous exemptions and the flexibility that being married or in a civil partnership provides, gradual disposal of, say, a share portfolio could be done with little tax arising.
Gains also die with you (to be replaced by Inheritance Tax) so the next generation can start afresh.
Where CGT does pose a problem, however, is to owners of large, indivisible illiquid assets, i.e. real estate. You cannot sell a house gradually, the gain is realised in one hit, so some impact on the markets for buy to let properties and holiday homes is anticipated. But, at a top rate of 28%, compared with 50% for income, CGT still looks quite appealing.
However, there is one investment which has a track record (at least, in the public’s perception) of delivering consistent returns, presents a number of fringe benefits and where all gains are completely free of CGT; your home. An investment property would have to grow in value by nearly 40% more than a home simply to cover the extra tax, and it probably will not.
However, the property market has rarely shown any sign of being influenced by rational thought and the impact of the tax may well be muted. The changes will not have done anything to dispel the belief that you should tie up as much money as possible in your own home and next time we wring our hands about why we are obsessed with property in the UK, we would do well to remember that.
