There is, unfortunately, speculation that the forthcoming Budget will introduce yet another round of increases in the rates of capital taxes. Not content with a 65% increase in rates from 20% to 33% since 2008, there is a fear that there will be both a further increase in the rates of Capital Acquisitions Tax (CAT) and Capital Gains Tax (CGT), a further reduction in the thresholds and the restriction of the remaining reliefs.
The CAT Rate
For a number of years up to 2008, CAT was charged at 20%. In the last Budget it was increased to 33% from 30%. Will it rise again? Some commentators fear it will, particularly as the rate is still lower than UK inheritance tax at 40% and the rates in other EU jurisdictions.
The CAT Thresholds
To many, a more important factor than the actual rates is the threshold at which CAT starts to bite. In 2008 the parent-child Group A threshold was around €520,000 and the CAT rate was 20%. Now the Group A threshold is €225,000.
So, not only is the rate higher, but it kicks in much earlier and so many more people are caught within its net. Take the example of a child inheriting €600,000 in 2008 – the tax charge would have been around €16,000. Now, the tax take would be about €123,000!
It could unfortunately get worse.
The CGT Rate
As with CAT, up to 2008, for a number of years, the principal CGT rate was 20% and now it is up to 33%. Will it rise again?
Although it is currently not a huge concern for the majority of people, there is recognition that excessively high CGT rates could prove a disincentive to people to sell assets. There is, therefore, a possibility that the rates of CAT and CGT may differ in the future.
There is also a possibility that there could be tiered rates of CGT (and indeed CAT), e.g. CGT rates could be linked to different periods of ownership or level of gains. There could, for example, also be a new lower CGT rate on the sale of business assets, which would be something to be welcomed. The National Recovery Plan of 2010 suggested some of these changes.
A further possible change is the restriction of the current CAT and CGT reliefs. The Commission on Taxation in 2010 suggested restrictions on the reliefs available on transfers of family businesses. These have only been partially introduced, so perhaps they will be implemented more fully, which would further penalise the transfer of businesses to family members. The National Recovery Plan also suggested a restriction of capital tax reliefs. There is, therefore, a distinct possibility that further changes could be on the way.
If there is any chance that you or any of your clients are in the process of transferring a business or business asset in the near future, it would be worth doing so before the Budget. For more information contact Barry Kennelly on firstname.lastname@example.org.
Director, ITC Consulting
*Please note this content is the view of the author and not of Independent Trustee Company