Autumn Statement: CGT and IHT allowances to rise by 1%
The annual tax-free allowances for capital gains tax and inheritance tax are set to increase by 1%.
George Osborne revealed the rises in his Autumn Statement, saying that from 2015 there will be a 1% rise in the allowance for both CGT and IHT.
This will bring the annual CGT tax-free allowance to £11,100 and the IHT tax-free nil-rate band allowance to £329,000.
Though any increases are to be welcomed in this age of austerity, many experts are less than impressed with the lower than inflation increases.
Colin Glass, wealth protection lawyer and partner at DWFM Beckman, has branded the increases "derisory', pointing out that particularly in London and the south east, where house prices are well above the national average, the IHT increase is not enough.
"If the government had increased the nil-rate band level with house price inflation over the corresponding period it should now be £522,000 and not the current £325,000," comments Glass.
Sean McCann, personal finance specialist at NFU Mutual, says: "Raising the threshold for inheritance tax by 1% is largely an empty gesture; it doesn't address the real problem of rising asset prices eroding family wealth. We'd like to see more being done to help people pass on assets to the next generation."
Speaking about the CGT rate, which will stay at £10,600 for 2012/13 before rising to £11,000 the following year and finally £11,100 in 2015/16, Danny Cox, head of advice at Hargreaves Lansdown, says: "These modest increases help to offset inflation but underline the importance of using capital gains tax shelters such as stocks and shares ISAs."
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.