Connor Read: Hi everyone, I’m joined here by Chris Green, Head of Financial Planning here at City Asset Management. We’re just going through a few points about the recent budget, and I thought right now we could talk a little bit about capital gains tax.

So, Chris, capital gains tax (CGT) was rumoured to increase quite significantly with varying levels from different journalists suggested, and even that it might increase to income tax levels. So, there was a lot going around, but what’s actually happened now, and when does it take effect?

Chris Green: So, yes, the increase to capital gains tax took effect from the evening of the budget, so it’s in effect right now. Basically, capital gains was increased at the basic rate from 10% to 18%, which is now the equivalent rate to what’s being paid on the sale of second properties, and at the higher rate it increased from 20% to 24%, again equalized with second residential property CGT. So it’s not as big an increase as a lot of people were anticipating.

I think the Laffer curve came into this, and for those who don’t know, the Laffer curve basically is a curve that shows that as taxes increase, people make conscious decisions to limit their exposure to those taxes. So, I guess the point was, if you increase capital gains tax too much, then people will just sit there and say, “Well, I’m not realizing any gains then.” So, the actual tax take for the Exchequer would have gone down rather than up. So, I think the rates where they are: they’re still lower than income tax rates, it still gives you plenty of planning opportunities, and it’s probably better than we could have anticipated.

Connor Read: Yes, so some good news out of the budget, among other things. No one likes an increase, but it’s better than it could have been. With that in mind, are there any impacts on how people should maybe also change their planning as a result of these changes?

Chris Green: I guess the first thing is that we know it applies now, and we know what the rate is, so it just makes planning that little bit easier. Capital gains, as I say, is still less than income tax. So, if you’re faced with the option of raising income to meet your needs versus raising capital and paying a bit of capital gains tax, that swing is still in favour of paying capital gains tax over income tax. You’ve got to remember you only pay capital gains tax if you make a gain, which some people tend to forget.

And of course, there are other things we can do. So, if we’re exposed to capital gains, we can wrap investments up — ISAs are obviously suitable for nearly everybody because they give you that tax shelter. You are limited to what you can pay into an ISA, though that limit hasn’t changed – it’s still £20,000 a year. There are other solutions as well: investment bond solutions, onshore and offshore, which we discuss with our clients, and if anybody wants to talk about the effects of capital gains on their position, they can come and talk to us and we’ll plan around it for them.

Connor Read: Great, very much carrying on as we always have done. I also noticed that stamp duty on second properties increased on the day of the budget. What impact does this have on clients who have buy-to-lets or investment properties?

Chris Green: Yes, so it’s an increase in the surcharge on stamp duty, which only affects you when you buy a property; so if you currently own property then it doesn’t have any effect on you. There are basically no changes that actually impact current buy-to-let properties. But, obviously, if you’re in the market of selling and buying properties, it is going to have an impact, with an additional 2% surcharge on stamp duty.

Connor Read: Great, well I think that’s probably all we have time for now. Thank you for joining me, Chris.

Chris Green: Thank you.

Connor Read: And if you have any other questions following this interview, just get in touch with your usual contacts at City Asset Management, and we’ll be more than happy to help.