What does the budget mean for investors? It’s a question that many people were anxious to answer as they pored over the detail that emerged from George Osborne’s House of Commons delivery yesterday.
The provisions heralded a stark age of austerity, and no doubt the devil will be in the detail as full briefing papers emerge from the Treasury. In the meantime, some of the points that will affect British investors include:
CGT raise
The budget contained changes to the CGT regime which George Osborne claimed would bring in an extra £1 billion into the Treasury’s coffers.
For low and middle earners, CGT will be kept the same, at 18%. But for higher earners, the rate will rise to 28%. It is perhaps surprising that the previous government did not get around to doing this before, as taxing income and capital gains separately had long been seen as a loophole for higher earners to take advantage of. It was common for pay packets to be structured so that some of an executive’s pay would be received in share or other non-income forms, so that a tranche of their payment would fall into the “capital” category rather than “income”.
In practical terms, these changes will be felt most heavily in for people who sell their shares and second homes.
To encourage entrepreneurialism, CGT on investments in certain types of business will be extended from 10% on the first £2 million of the gain to 10% on the first £5 million.
Income tax
For income tax, personal allowances will be raised by £1,000 next April, and it is expected that the allowance will eventually reach £10,000 in the coming years. But the effects of this for higher rate taxpayers will be set off by a reduction in the earnings threshold for higher rate taxpayers – effectively bringing more people into the net.
VAT
Perhaps the most significant increase was in VAT. Going from 17.5% to 20%, the rise is set to bring in an extra £13 billion per year until 2014/2015.
