The Government has unveiled the detail of reforms to Capital Gains Tax ("CGT") that will come in to force on 6 April 2008. The two most significant changes are the abolition of taper relief and the introduction of a flat rate CGT of 18%. It is also worth noting that indexation allowance will be abolished but the annual CGT exemption will remain in force.
[/summary] [content]The Government has unveiled the detail of reforms to Capital Gains Tax ("CGT") that will come in to force on 6 April 2008. The two most significant changes are the abolition of taper relief and the introduction of a flat rate CGT of 18%. It is also worth noting that indexation allowance will be abolished but the annual CGT exemption will remain in force.
Following pressure from business leaders the effects of the reforms will be mitigated by the introduction of a new ‘Entrepreneurs Relief’. This will provide each tax payer with a lifetime allowance of £1M of qualifying capital gains. CGT on qualifying gains will be charged at a reduced rate of 10% up to the allowance. Gains in excess of £1M will be charged at the new 18% band.
For a disposal to qualify for relief the asset being sold must have been held for at least one year by an individual involved in running the business. The type of asset for which relief will be available for include gains made on the disposal of all or part of a business and gains made on disposals of assets following the cessation of a business.
The CGT reforms have been met with a mixed response. The ‘winners’ from the reforms will be those who benefit from the cut in the headline rate from 40% to 18% but who do not suffer too badly from the removal of the existing tax reliefs. The ‘losers’ will be those who enjoyed generous tax reliefs under the old regime for whom the new 18% flat rate will be a tax increase. Individuals who fall into the latter category should consider selling their holdings before the new regime is introduced.
For more information, please contact the head of our corporate unit, Elspeth Curle.
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