CGT and its impact on investors

StevieJ

RayWolfe wrote: »

Agree with the majority of posters here.
The press likes nothing more than terrifying people who don't understand the truth. It was (IS) the same with IHT. In fact, it seems that newspaper owners and editors, who are probably in the top income decile, are the people who may be hit and use their papers to serve their own interest!
Shame on them.

Good to know we are not going to lose the £10k CGT allowance :beer:

jamesd

dunstonh wrote: »

It will have no cost impact on most investors with portfolios up to around £500k as long as they utilise allowances and take care. Its the big investors that will be worse off.

That's grossly understating who can be affected. With just £30,000 or so invested initially I managed to get enough capital gains from sales last year to fully use my CGT allowance and if I'd sold the lot I'd have paid CGT. That's a world away from the £500k figure you're giving.

Investment bonds are probably inappropriate for just a £30k investment, even if appropriate investments are available for the high risk tolerance. ISA allowance fully used. Pension used as much as sensible. Neither an investment bond nor pension wrapper was or is suitable for the timeline involved - investing property deposit and money to cover me if I find myself unable to work before I can take pension income.

There's a really easy test for who the government is targeting: if the CGT allowance remains the same, it's aimed at middle class, meaning those from around the start of higher rate and in the first few tens of thousands of income above it. If it's reduced, it's trying to include more of those between average and higher rate incomes and below who are saving and investing aggressively. If the limit is increased greatly it's aimed at the really high earners. This is because around 40% of CGT is paid by people up to and around the start of the higher rate income tax band, then not a lot more until around £100k and finally the remaining 60% mostly by those with incomes over £100k. Whatever is done it's a safe bet that the government will claim it's aimed at rich people even if a large chunk of the revenue won't be coming from people who are rich.

It seems likely that one prime target will be those who choose to use direct residential property investing instead of pension investing for their retirement income. Presumably described as "rich second home owners" rather than "ordinary people people investing for their retirement" because the former sounds better.

Sceptic001 wrote: »

Savers should be far more worried about the effects of inflation eating away at their savings at a rate of 3-5% (depending on which measure you use). This is far nastier than tax.

The prospect of paying 18%, 20%, 40% or 50% CGT on inflation-produced gains isn't very attractive either.

dunstonh

That's grossly understating who can be affected. With just £30,000 or so invested initially I managed to get enough capital gains from sales last year to fully use my CGT allowance and if I'd sold the lot I'd have paid CGT. That's a world away from the £500k figure you're giving.

For you to exceed the £10k personal allowance on 30k you would have needed a 34% gain. Certainly possible last year. However, all you needed to do was sell enough to utilise the CGT allowance. Also, with £30k, you would have had the first £10200 in an ISA. So, that is exempt. If a couple, that would be £20,200 in an ISA, so exempt. You could have then bed & ISA this tax year without fear of any CGT gain. (i know you used your ISA allowance but i cover that bit below)

You also wont get 34% every year.

Investment bonds are probably inappropriate for just a £30k investment, even if appropriate investments are available for the high risk tolerance.

Old fashioned ones yes and by the time you use the ISA allowance on the first £10k (assuming single), the £20k left would still be better held unwrapped to allow you to bed & ISA in the following tax years. Modern investment bonds allow the full unit trust range and direct investments. Even if the ISA is fully used, 30k is still better unwrapped to allow you to utilise the CGT allowance last year and this year.

There are always going to be exceptions to scenarios. The key thing going foward is not that it will necessarily cost you any more (as for most it wont). Its just that you will need to use your allowances and tax wrappers and do a bit more planning.

jamesd

Yes, what I did was sell enough to use the CGT allowance, leaving the rest invested. I bought other investments with two thirds of the money. I'm now selling the part that I didn't sell as first priority for paying a property deposit I'll need in a few weeks. That'll use some of this year's allowance.

The allowances and wrappers are OK for those moving slowly or those on incomes below around average income. The ISA allowance will do the job then. If you're very committed on higher incomes you can quite quickly get well above what you can put in wrappers sensibly, yet still be doing things like investing for your first property deposit, retirement and to avoid being dependent on benefits and be subject to CGT exposure even at current allowance levels.

The main point was that it doesn't take £500k to pay CGT. Even if you're not rich, far less can get you a big bill if you're selling after a good year, holding a property for many years or a bout of high inflation if there's no index linking.

Stavros_3

Were fooked

lvader

If people sell assets now due to the rise in CGT the government will see a surge in tax reciepts. Even if the asset prices go down there will still be buyers at the right price adding further gains in stamp duty etc. If people spend rather than invest that isn't a bad thing either.

Mikeyorks

StevieJ wrote: »

But I bet you would have taken the 3.2% the year before that

Not really ...... I was getting close to an average 7% in cash the year before. Despite some nervousness around Anglo Irish.

But its those matured accounts that have mainly made the 58% gains I experienced last year. I doubt, however, it will be as substantial this year!

jamesd

Well, the budget did this with CGT:

18% for basic rate tax payers, no change.
28% for higher rate tax payers from midnight 22 June 2010
CGT allowance unchanged at £10,100 and to rise with inflation (presumably CPI) in future years.

This looks like quite a decent job of limiting the effect on the middle class and lower earners, while still making it harder for those who are really rich to avoid paying more.

It was also interesting that the Treasury dynamic model predicted that a rate higher than 28% would lead to lower revenue as people acted to avoid the tax.

dunstonh

After all that, the CGT changes were minimal to most people. I suppose the media will now claim they reduced the impact.

StevieJ

dunstonh wrote: »

After all that, the CGT changes were minimal to most people. I suppose the media will now claim they reduced the impact.

I am sure they did have some impact.