Capital gains v income tax
Whatever the outcome of the Pre-Budget Report December 2009, there is likely to be a tax advantage in having wealth gains taxed as capital gains rather than income.
With the prospect of higher rates of income tax at 50% and the capital gains tax rate at 18% for 2009-10 it is evidently preferable to make hay while the sun shines – while the CGT rate is lower than income tax rates.
- A number of banks are offering investments where the return is structured as capital and subject to capital gains tax rather than as income-bearing investments such as cash deposits.
- It may also be possible to replace traditional equity reward plans and discretionary cash bonus schemes with employee incentive plans that provide tax-efficient arrangements which align employee rewards to the commercial objectives of the business. In addition to the potential tax saving this also gives a possible national insurance saving.
Readers may be interested to note that the Pre-Budget Report released this month did not change the rates of capital gains tax which remain at 18%.