As part of today’s June 2010 budget changes, the Chancellor George Osborne has announced an increase in Capital Gains Tax for higher earners from 18% to 28%, effective from midnight tonight.
This will relate to higher earners who earn more than £44,875 (i.e. who have taxable income of more than £37,400). For those paying the basic rate of tax, CGT will remain unchanged at 18%.
The Capital Gains Tax tax-free allowance of £10,100 will remain unchanged by the budget changes.
Capital Gains Tax applies, not to the full value of an asset, but to the gain or profit made from that asset – in other words, to the increase in its value from buy to sell. For instance, a house bought for £150,000, which you sell today for £250,000 would be taxed on your gain, or profit, of £100,000.
Budget Changes in CGT could affect shareholders
Today’s budget changes raising Capital Gains Tax to 28% will also hit the profits or gains made by those selling shares in the company where they work. This would affect the many thousands of UK workers who are given company shares as part of their salary and benefits package.
Budget Changes to CGT will hit those with second properties
While primary residences, i.e. the family home, is exempt from CGT, it does apply to second homes, either holiday homes or homes bought by pension savers on a buy-t0-let basis, as part of their pensions and retirement strategy.
Will there be an exemption for elderly?
Under today’s budget changes with regard to Capital Gains Tax, elderly homeowners who move into care homes could face capital gains tax when later selling their home.
There are currently 380,000 care home residents in the UK, of which an estimated 1 in 4, or 155,000, are home owners, according to nursing home research group Lang and Buisson. Many elderly people hold on to their family home for several years when they move into care, in case they become well enough to move back home. As a result, a significant number have been in the care home for 3 years, before they decide to sell their family home to pay the continuing cost of care. Unfortunately under legislation introduced in the budgets of previous governments, they would be liable for capital gains tax on second property, as after 3 years their home is then deemed by HMRC no longer to be their primary residence. In effect, their home would have the same status as a second home or a buy-to-let property, at that time.
Capital gains tax on second property would apply in this case to homes that increase in value by more than £10,000 during the 3 years the owner is in the care home.
Do you have questions about today’s budget changes or Capital Gains Tax? Contact our dedicated Budget Help Desk via an online financial advice enquiry or ring freephone 0800 678 5929 now.
I think that your advice on possible CGT liabilities for the elderly could be dangerously misleading.
Here are the facts:
Once you have not lived in a property for 3 years the Revenue no longer classify it as your primary residence, and as a secondary residence it becomes subject to CGT if you sell it.
We have also stated on our June 2010 Budget page that there is still the possiblity of an exemption on this:
“Although the government said that the elderly and those approaching retirement should not be targeted by CGT increases, there would at present seem to be no apparent exemption for the special group of those resident in care homes.”