‘The latest figures on the public sector finances show that George Osborne was wrong in his Emergency Budget last June to increase capital gains tax immediately’ says Harwood Hutton tax partner, Cormac Marum.
‘The higher than expected public sector net borrowing surplus for January 2011 is clearly the result of the introduction of the 50% top tax rate. Because the change was announced early, people wherever possible undertook sensible tax planning and, for example, extracted profits early from their companies so as to be taxed on them at a 10% lower rate. The extra dividends paid have produced the spike in tax revenues this January.
Last June, George Osborne increased the capital gains tax rate from 18% to 28% but he made this change overnight from 23 June. Had he, instead, announced a hike in capital gains tax rates starting in April 2011, we would have seen a flurry of activity in the run-up to the rate change. Far more transactions would have taken place as people scrambled to save 10% on their capital gains tax and this would have led inevitably to another spike in tax revenues in January 2012.
With the Government facing enormous pressure on the public finances leading to cuts being introduced, George Osborne should have been smarter with the timing of the capital gains tax increase. The benefit he has received in January 2011 from his predecessor’s early announcement of the 50% top tax rate could have been repeated in January 2012 if only he had put up capital gains tax from April 2011 rather than overnight’.