|
|
The New Capital Gains Tax Regime
April 2008
2008 Budget update:
In his Budget on 12 March 2008, the Chancellor
announced that these proposals will be included unchanged in the 2008
Finance Bill.
From 6 April 2008 substantial changes to Capital Gains Tax (CGT) will
apply to individuals, trustees and personal representatives, but not
for companies.
Finance Act 2008 will introduce the following changes:
- A main rate of CGT of 18% will apply to all gains other than those
covered by the new Entrepreneurs tax relief or the CGT annual exemption
- A lower rate of 10%* for gains on certain business assets which are
covered by the new Entrepreneur's
relief
- Capital gains will no longer be taxed by reference to income tax rates
and bands
- The following will be abolished: taper relief, indexation allowance
(currently frozen at April 1998), and 'halving relief', however, in
some cases, indexation will not be lost after 6 April 2008
- Rebasing of cost to 31 March 1982 value will be compulsory for assets
held at that date
- Simplification of the rules for matching certain assets (mostly shares)
disposed of with assets acquired
- The new Entrepreneur's relief will be available in respect of gains
made on the disposal of certain business assets.
* not exactly, slightly higher rates apply if the CGT annual exemption
is unused.
Entrepreneurs' relief
Although not dissimilar to CGT retirement relief which was phased
out in 2002/03, this relief will not be based on any 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 to CGT at an effective rate of 10-ish per cent.
Gains in excess of £1 million will be charged at the normal 18
per cent rate.
- An individual will be able to make claims for relief on more than
one occasion, up to a lifetime total of £1 million of gains qualifying
for this type of relief.
According to HMRC's guidance notes the new relief will apply against:
- Capital gains made when an individual disposals of all or part of
an unincorporated business or partnership
- Capital gains made when an individual disposes of assets following
the cessation of a business
- Capital gains made by individuals on the disposals of shares and securities
in a trading company (or the holding company of a trading group) provided
that the individual making the disposal:
1. Has been an officer or employee of the company or one in the same
group and,
2. Owns at least 5% of the ordinary share capital of the company, and
is entitled to exercise at least 5% of the voting rights.
A 'business', in terms of this relief will be any trade, profession
or vocation, excluding property letting business, but furnished holiday
letting is treated as a trade for this relief.
Draft legislation is expected in the coming weeks for Entrepreneurs'
relief and until then 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.
Employee share schemes
No changes have been announced for "tax advantaged" employee
share schemes from 6th April 2008, other than in tax rates.
- All gains made on approved schemes which includes EMI schemes will
be taxed at the flat rate of 18% after deducting the annual exemption
(£9,200 2007/08, and set to rise in 08/09).
- Employees who hold less than 5% of the voting capital of their employers
companies may lose out due to the loss of the business asset taper relief
under the new rules.
- Employees who hold stakes of >5% of shares and voting rights may
well be eligible for Entrepreneurs relief.
Other existing CGT reliefs
Other existing reliefs will continue to be available post 6 April
2008 for:
- Principal private residence relief and letting relief
- Business asset roll over relief
- CGT relief under the VCT and EIS schemes
- Business asset gift hold-over relief
- Losses may still be carried forward
If you would like to discuss the impact of these proposals please
contact Don Fisher.
|