Major changes to Capital Gains Tax from April individuals and businesses need to Act Now!
The Chancellor has announced major changes in Capital Gains Tax (CGT) from April 6th. These aim to simplify CGT, with a flat rate of 18%.
The recently agreed entrepreneurs relief means the first 1 million gain could be taxed at 10%. If you are in business you could save a substantial amount by reviewing your tax planning as soon as possible.
The changes
Although these changes apply to gains made by individuals, trustees and personal representatives after 6th April 2008, planning for maximum benefit can start immediately. The changes do not apply to companies.
- The main rate of CGT will be 18%.
- The entrepreneur relief rate of 10% applies to the first 1 million of lifetime gain
- These rates apply to taxpayers at all levels
- Indexation allowance (frozen at April 1998), taper and some other reliefs will be abolished
- March 1982 will be the compulsory base date for assets held at that date
- The rules for matching shares are also simplified
- Our tax advisers are best placed to make sense of the above and get you the best result
Entrepreneurs relief
This is very similar to the old retirement relief that was phased out in 2002/03. However this time the relief will not be based on age or illness conditions and the qualifying holding period will only be one year.
- The first 1 million of lifetime gains on qualifying business assets will be charged at an effective 10. Gains over 1 million will be charged at the normal 18 per cent rate.
- Individuals will be able to claim on more than one occasion, up to a lifetime total of 1 million of gains.
As always the devil will be in the detailed legislation. One key clarification required by that will be which assets will qualify as business assets?
HMRC have not yet published legislation on this subject but they have given guidance of their intentions;
The relief will apply to gains arising on disposals of the whole or part of a trading business (which will exclude property letting businesses) carried on.
The relief will also apply to gains on disposals of shares and such as loan notes in trading companies provided that the individual making the disposal:
- has been an officer or employee of the company, or of a company in the same group of companies, and
- owns at least 5 per cent of the ordinary share capital of the company and that holding enables the individual to exercise at least 5 per cent of the voting rights in that company.
[At first glance this appears to protect the position of those who have made disposals in exchange for loan notes, however confirmation will be in the legislation].
The terms 'trading company', 'holding company' and 'trading group' will have the same meaning as they currently do for the purposes of taper relief on business assets.
The entrepreneurs relief will extend to 'associated disposals' of assets used in the companys business.
For example, if a company director who owns the premises from which the company carries on its business sells the premises at the same time will be able to claim the relief. The relief will be restricted where the asset in question was not wholly in business use throughout the period it was owned.
As mentioned above the draft legislation is expected in the coming weeks for entrepreneurs relief we will have to wait and see if there are any transitional provisions and whether the 'lifetime allowance' starts rolling on 6 April 2008 or is actually from birth.