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CGT may be changing, but do you know it might affect your school fees planning? 
The Chancellor has announced plans to replace the current rules for capital gains tax with a single rate of 18%; but removal of “taper relief” means planning is essential. SFIA is confident that equity investments remain the best way to plan for the cost of an independent education for your child.
The change to capital gains tax favours those disposing of non-business assets, rather than business investors. This could be good news for those using shares and unit trust investments to cover the cost of school fees because, for higher rate taxpayers, the amount of capital gains tax they pay will be lower. Shares, unit trust and similar “non-business” assets held for ten years or longer currently attract an effective rate 24%, for higher rate taxpayers. This is because of the government allows “taper relief” to offset the effect of inflation. The new rules will mean that long term savers who pay higher rate tax will immediately be some 25% better off, in terms of the actual tax they pay on gains. (The personal exemption – currently £9,200 a year - is unlikely to alter, other than in line with inflation, so the effect of this is neutral.) However, for those holding assets over a shorter period, the difference is far more pronounced. An asset held for less than three years currently attracts no “taper relief” at all, so the gain for a higher rate taxpayer is taxed at 40% (in excess of the personal exemption). Even for basic rate taxpayers holding assets for less than four years, the new tax rate is lower. As ever with tax issues, there is a potential downside and for capital gains tax it will be the impact on the small business sector. In its case, almost everyone (including basic rate taxpayers such as employees in companies with share-based profit schemes) will end up paying more tax on the gain, because of the loss of taper relief. The four leading UK business bodies joined together for the first time that anyone can easily recall, to lobby the Chancellor on this point. The result has been an indication that the government might re-introduce retirement relief (which was phased out during the first years of the Blair administration) for the first £100,000 of gains. This would be of modest assistance to many businesses and of no value to employees and the venture capitalists who help so many small businesses to grow. If you require any further information about the services that we provide or would like to review your financial planning position, please contact us |