Law Updates

Capital Gains Tax Reform

On 6th April 2008 major changes to Capital Gains Tax ('CGT') will take place.

When a person disposes of an asset CGT is potentially payable on the gain or increase in value since the person acquired the asset. This is so whether the disposal is a sale or lifetime gift.

Some assets are exempt, notably a person's principal private residence and CGT does not usually apply to transfers made on death (when the beneficiary is treated as as acquiring the asset at its probate value). There is an annual exemption, currently £9200 for individuals and hold-over relief may be available for some lifetime gifts.

The main changes on the 6th April 2008 are :

A single flat 18% rate of tax (presently taxable gains are treated as if they were the top slice of a persons income in the tax year of the disposal and so could be taxed at 10%, 20% or 40%)

The abolition of Indexation allowance (this applies where an asset was acquired before 17th March 1998 and provides for a deduction calculated by reference to the Retail Prices Index to prevent CGT being charged on gains due to inflation)

The abolition of Taper Relief (this reduces the rate of CGT chargeable - the reduction depending on how long an asset was owned after 6th April 1998 and whether it was a 'business' asset )

A new 'Entrepreneurs Relief' under which gains of up to £1million on business assets may be taxed at 10% instead of the new 18%

The new Entrepreneurs Relief has similarities to the former Retirement Relief abolished in 2003 but the qualifying conditions need only be satisfied for one year and there will be no minimum age. The £1million limit is per lifetime not per disposal.

The assets which will qualify for the new relief include:

~ The whole or part of a "business" (being a trade or profession or furnished holiday letting) carried on by a sole trader or partnership

~ Assets used in a 'business' which has ended provided the assets are disposed of within 3 years

~ Shares in a 'trading company' owned by an individual who holds at least 5% stake in the company and who has been an officer or employee of it

It is hard to say whether more or less tax will be payable under the new arrangements because much depends on the circumstances of each individual case. If you think you may be affected it is recommended you seek professional advice quickly and before the end of the current tax year.

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