Does this mean the end of the CGT tax-free allowance?

For many investors, the capital gains tax (CGT) annual allowance is an important part of tax planning within an investment portfolio.

The ability to realise up to £10,600 of investment gains this tax year is a valuable tax break; often more valuable than the value of tax breaks within ISA portfolios.

But could new proposals from the Liberal Democrats mean the end of the CGT tax-free allowance?

They are proposing the effective abolition of the CGT annual allowance, by combining it with the income tax personal allowance.

Under their proposals, the income tax personal allowance would be increased from £8,105 to £12,500.

This move is designed to stop people from converting their income into capital gains, in order to avoid tax.

What it would achieve in practice is removing this valuable tax allowance from investors with genuine capital gains.

Whilst not the only tax proposal from the Lib Dems, we feel this is the one most likely to be implemented should they re-enter government following the next general election, as part of a coalition.

They have also proposed replacing inheritance tax with an accession tax levied on the beneficiary (rather than the estate), extending the 7 year gift exemption for inheritance tax to 15 years, and reducing the pension annual allowance from £1.25m to £1m.

We suspect that even most Lib Dem supporters would accept that the implementation of all of these tax proposals, as a result of a Lib Dem election victory in 2015, is very unlikely.

They might however form part of coalition negotiations, entering a new coalition agreement and being introduced during the life of the next parliament.

Photo credit: Flickr/Liberal Democrats