Proposed Capital Gains Tax Reform

In his Pre Budget Report in October 2007, Chancellor Alistair Darling announced potentially wide sweeping changes to the Capital Gains Tax (CGT) regime.

After months of uncertainty and many businesses being unable to make key decisions whilst they floated in limbo � further announcements have now been made.

However, even with just two months before the changes potentially take affect, legislation has not been drafted.

On 24th January 2008, in response to pressure from the business community, the government revealed that there will now be a new flat rate of CGT at 18%. Indexation allowance and taper relief (which were means for allowing for inflation on the original purchase price) are to be abolished from 6th April.

 

The Chancellor has made one concession from his original proposals however, with the introduction of Entrepreneurs Relief. Individuals will be taxed at 10% on their first �1million gain generated from the sale of shares in businesses which they have more than a 5% interest in. This is to help �serial entrepreneurs.�

An example of how the relief will work is: If Bob sells his trading business and realises gains of �600,000 (before Entrepreneurs� Relief) and he has made no other claims to the relief, then the whole of the gains are eligible for relief. Meaning �60,000 of CGT is payable subject to deduction of any allowable losses and the annual exempt amount.

Senior Accountant Kate Brown of A P Robinson & Co states: �As with all changes this new regime will create winners and losers. Currently individuals who hold business assets for over 2 years only pay tax at an effective rate of 10% or even in some circumstance lower. However, owners of non business assets (such as rented residential properties) will see their tax potentially fall by 22%.�

Kate continues: �Special thought needs to be given if you own a commercial property, in most circumstances the new tax rate has risen to 18%. The timing of sales in relation to CGT has always been key, but is particularly so now. Anybody currently contemplating the sale of an asset should take professional advice over whether the timing of their sale could help to optimise their tax position.�

A P Robinson & Co�s Practice Manager, Emma Stamp comments �Someone with a non business asset who has not held it for a long period of time will irrefutably be in a better position.�

�The existing annual exemption and spouse transfers remain in place which gives further opportunities for planning. But, every individual�s situation is very much dependent on their personal circumstances; we strongly recommend that people seek professional advice. A P Robinson & Co is more than happy to help individuals seeking guidance.�

With legislation still not formally drafted, the Institute of Chartered Accountants have urged the Chancellor to listen to the tax payer profession and defer any changes to CGT until April 2009 � due to the complexity and time needed to implement appropriate arrangements before the new regime comes in.

Grimsby and Scunthorpe Business Telegraph 19th February 2008