The use of large up-front fees and disproportionate deposits has already resulted in significant cost consequences for one care provider.
This is good news for tax payers, particularly higher-rate taxpayers who can look to concentrate on capital growth rather than income generation through their savings and investments, to generate tax efficient investment performance where appropriate. For basic-rate tax payers, the harmonisation of tax rates will come as a relief, reducing the tax burden on disposal of capital assets.
The capital gains tax rate reduction also offers good news for trustees who often have the challenge of weighing up the needs of different classes of beneficiaries for income and capital growth..
Trustees will now also be able to benefit from the 20% rate of capital gains tax, which means there are opportunities for more streamlined tax approaches to be taken. This could be potentially looking to greater emphasis on capital growth rather than income generation in appropriate cases.
In life-interest trusts, trustees will still be obliged to hold the balance between capital growth and income generation for the life tenant. However, for many discretionary trusts, the ability to grow capital in a more tax-efficient way than previously will be attractive.
Capital Gains and Property
The news is slightly different for those with property investments. They will still be penalised, as the new lower rate of capital gains tax is restricted to general investments. Gains on second properties, e.g. buy to let or holiday homes will continue to be taxed at the higher rate. It should also be noted that the sale of such assets also come with a requirement that capital gains tax must be paid within 30 days of any sale.
The Government policy is arguably looking to widen homeownership in the UK. By removing the barriers to purchases by seeking to stoke the housing market with opportunities for property purchases, the Government hopes that house ownership will become more affordable. However, the practical effect of this move remains to be seen. For those already with property portfolios, there may now be a significant reason NOT to sell but hold property investments for the long term,
The question remains as to whether the change to capital gains tax treatment of any property which is not a principal residence will in fact limit the number of people investing in buy to let properties – especially when coupled with other Government measures such as the increased rates of Stamp Duty Land Tax for second properties. The intention to reduce the buy to let boom might be clear but the proof of the pudding will be in the eating and only time will tell whether this combination of policy does make a difference.
Overall, the budget did not, for once at the least, massively change the tax landscape, save in relation to capital gains tax. However, with the prospect of the EU referendum firmly on the horizon the possibility of a second or third budget during the 2016/17 budget financial year is not beyond the realms of possibility.
For further information about anything raised in this article, please contact Donna Holmes.
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