INDUSTRY specialists are keeping a sharp eye on developments in the Capital Gains Tax (CGT) debate – and especially on whether any rise will be accompanied by a reintroduction of taper relief.
“A further tax on owning works of art is not going to be welcomed,” James Roundell, of the Society of London Art Dealers, told ATG.
“Any rise would not be good news for the British middle-range collector, although in the international arena, with so many different tax regimes, the art market somehow takes these changes in its stride.”
Mark Dodgson, Secretary General of the British Antique Dealers’ Association, was cautious about the likely effects. “The devil’s in the detail,” he said. “When CGT ran at 40 per cent, it was index-linked so that the longer you held onto your antiques, the less tax you paid on them when selling. This policy protects assets.”
Labour cut the CGT rate from 40 per cent to 18 per cent in 2008 in exchange for scrapping taper relief. But the problem now is not just whether index linking will be reintroduced with the rise.
There has been some talk of CGT rising to as much as 50 per cent for higher-rate taxpayers – and there is also the possibility of the exemption threshold, which currently stands at £10,100, falling to the £2000 promised in the Liberal Democrat manifesto.
The website www.ValueMyStuffNow.com (VMSN), an online valuation service for owners of antiques and collectibles, reported a sharp increase in requests for valuations following confirmation that CGT would rise.
“This trend suggests that people are working out their potential tax liability and are anxious that if CGT rises from 18% to 40% and the annual exemption allowance is reduced from £10,100 to £1000-2000 they avoid the higher tax rate,” said Patrick van der Vorst, the former Sotheby’s director, who founded VMSN.
A counter proposal put forward by Conservative former minister John Redwood argues that a hike to 40 per cent without accompanying taper relief would actually reduce the amount of tax raised for the Inland Revenue.
Growing support among fellow Tory backbenchers for Mr Redwood’s stance is reportedly having an effect on Downing Street, but it is not clear whether any further announcement on policy will be made before the Chancellor’s emergency Budget statement on June 22.
“As Capital Gains Tax is charged on the total of gains in a financial year, less any losses in that year or brought forward from previous years, it is believed that any changes to the way the tax is charged will be from April 2011,” advised Mr van der Vorst.
And he added: “It would be possible for changes to be implemented within days. If that did happen it would be unlikely that profits already realised would be taxed at the higher rate.”
One silver lining is that certain areas of collecting, such as clocks, guns, carpets and classic cars, are exempt from CGT because they are deemed as ‘wasting assets’ by HMRC on the basis that they have a useful life of less than 50 years.
To qualify, the relevant collectable must also not have been used in the owner’s trade or job.
Full details of rights and obligations under CGT are available from the HMRC website at www.hmrc.gov.uk/cgt
By Ivan Macquisten