Backdating capital gains tax

In simple terms, gains are calculated by deducting the purchase price of an asset from its sale price. In their Election manifesto, the Liberal Democrats also said they wanted to cut the annual CGT allowance from £10,100 to £2,000, so experts are worried this could also be a target. It applies only when you sell an investment or asset. But investments made years ago could suddenly be liable for a higher than expected tax bill if they have to be sold.

An investor cashing in £20,000 of gains, who today would pay £1,782 in tax, might pay £7,200. This is the dilemma faced by full-time landlord Paul Gott, 45, who owns 21 letting properties in Leeds, Bradford and East Lancashire.

The board’s action makes the option a non-qualified stock option because the exercise price does not equal the fair market value of the stock at the date of the grant.

Non-qualified stock options require tax payment at the ordinary income rate for the difference between the grant price and the price at which the option is exercised (the gain).

Each person has a £10,100 annual allowance of gains free from CGT. This suggests CGT could rise substantially, but it is not clear whether a new higher rate of perhaps 40% would apply to all, or only to higher and top-rate taxpayers.

It is charged at 18%, no matter what your rate of income tax. The Government's coalition blueprint published last week says it wants to seek ways of taxing non-business capital gains at rates close to those applied to income.

To make a negligible value claim, the taxpayer must own the asset at the time the claim is made.

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They save an extra 20% of tax on interest and avoid a higher-rate tax charge of 22.5% of gross dividends (25% net) on shares. If you invest in both types, your overall allowance is still £7,200.

In October, the allowances for those aged 50 or over were raised to £5,100 for a cash ISA and £10,200 for a stocks and shares ISA and these annual limits will apply to everyone from 6 April 2010.

If you haven't already invested in an ISA this year, you could invest before 5 April up to your limit and again after that date up to the 2010-11 tax year's ISA limit, giving a total investment of up to £17,400 per person (£20,400 for the over-50s) or £34,800 (£40,800 for the over-50s) per couple.

When a taxpayer makes a negligible value claim, they are treated as if they had sold the asset and immediately reacquired it for its value at the time the claim is made.

This results in a capital loss that the taxpayer can set against capital gains and, in some cases, income.

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