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Budget 2016: Capital Gains Tax and National Insurance cut for some Budget 2016: Capital Gains Tax and National Insurance cut for some
(35 minutes later)
Big changes to Capital Gains Tax (CGT) and National Insurance contributions (NICs) will affect several million taxpayers.Big changes to Capital Gains Tax (CGT) and National Insurance contributions (NICs) will affect several million taxpayers.
From 2018, the self-employed will no longer have to pay what are known as Class 2 NICS.From 2018, the self-employed will no longer have to pay what are known as Class 2 NICS.
Currently about 3.4 million people pay this at a rate of £2.80 a week, which contributes to their state pension entitlement and other benefits.Currently about 3.4 million people pay this at a rate of £2.80 a week, which contributes to their state pension entitlement and other benefits.
The higher rate of CGT will be slashed from 28% to 20% this April.The higher rate of CGT will be slashed from 28% to 20% this April.
This particular change would "put rocket boosters on the backs of enterprise and productive investment", Mr Osborne told MPs.This particular change would "put rocket boosters on the backs of enterprise and productive investment", Mr Osborne told MPs.
Capital Gains TaxCapital Gains Tax
In a further refinement, the basic rate of CGT will be cut from the current 18% rate to 10% at the start of the new tax year, in three weeks' time on 6 April.In a further refinement, the basic rate of CGT will be cut from the current 18% rate to 10% at the start of the new tax year, in three weeks' time on 6 April.
The Budget documents show that the government estimates that these CGT changes will cost it more than £600m a year from 2017-18 onwards.
CGT is charged on the annual profit made from the sale of assets - such as a business, a second home or shares - if that total profit is greater than an individual's current CGT allowance.CGT is charged on the annual profit made from the sale of assets - such as a business, a second home or shares - if that total profit is greater than an individual's current CGT allowance.
That allowance currently stands at £11,100, and the tax as a whole brought in £5.6bn to the government in the 2014-15 tax year.That allowance currently stands at £11,100, and the tax as a whole brought in £5.6bn to the government in the 2014-15 tax year.
However, there are two important exemptions to the chancellor's reforms.However, there are two important exemptions to the chancellor's reforms.
The old higher rates will still apply to gains on the sale of a residential property that is not your main home (such as a second home or a buy-to-let property), and also to "carried interest" - the jargon name for profits made by executives in private equity investment firms.The old higher rates will still apply to gains on the sale of a residential property that is not your main home (such as a second home or a buy-to-let property), and also to "carried interest" - the jargon name for profits made by executives in private equity investment firms.
National Insurance simplifiedNational Insurance simplified
At the moment the self-employed only pay Class 2 NICs if they earn a profit of £5,965 or more a year. Doing away with Class 2 NICs, an important piece of tax simplification, will cost the government about £360m a year.
They also have to pay Class 4 NICs if their annual profit is more than £8,060 a year. "This will allow millions of self-employed individuals to keep more of their money and invest it back into growing their business, as well as ending an outdated and complex feature of the NICs system," said the government.
In an important piece of tax simplification, only Class 4 NICs will be payable by the self-employed when the change starts in two years' time. At the moment the self-employed pay Class 2 NICs if they earn a profit of £5,965 or more a year, but they also have to pay Class 4 NICs if their annual profit is more than £8,060 a year.
"After April 2018, Class 4 NICs will also be reformed so self-employed people can continue to build benefit entitlement," the Treasury said. From April 2018 only Class 4 NICs will still be payable.
However the government explained that the system of paying these contributions would be changed to ensure the self-employed could continue to build up their entitlement to some contributory benefits, such as the state pension.