Private investors look set to gain from a surprise capital gains tax (CGT) giveaway by chancellor George Osborne although residential property will be exempt.
The levy is charged when an investor sells an asset that has gone up in value. It is paid at a basic or higher rate, depending on your income tax band, on a range of investments including equities, second homes and buy-to-let properties.
From 6 April, the higher rate of CGT will be cut from 28 per cent to 20 per cent, while the basic rate will fall from 18 per cent to 10 per cent.
But buy-to-let landlords and second homeowners will not benefit from the changes as they will have to pay an additional 8 percentage point surcharge attached to residential property and carried interest (the share of profits or gains paid to asset managers).
This effectively means the CGT rate on residential property and carried interest remains the same.
Mr Osborne said: "We want people to invest in our businesses, and help them create jobs. The best way to encourage that is to let them keep more of the rewards when that investment is successful. Our capital gains tax is now one of the highest in the developed world, when we want our taxes to be among the lowest."
CGT had been an area that some investment analysts had speculated the chancellor might decide to raise rates on to bring in more revenue for the government after the UK's growth forecast was downgraded.
George Houston, senior technical manager at the wealth management firm Mattioli Woods, said: "The announcements on the reduction in the rates of CGT for both basic- and higher-rate taxpayers will be welcomed by many clients and provides further encouragement to those looking to actively invest their wealth over a well-diversified portfolio of investments."
