Budget 2008
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Capital Gains Tax
Annual exemption
The annual exemption for individuals has been increased to
£9,600 for 2008/09 (2007/08: £9,200). Trustees
receive half this figure (£4,800 for 2008/09; £4,600
for 2007/08), although this may be shared between trusts which
have been set up by the same person.
Major reform of the tax
As announced in the Pre-Budget Report in October, the following
major changes will take effect for disposals on or after 6
April 2008:
- abolition of taper relief, which since 1998 has reduced
the chargeable gain based on the length of ownership and
has reduced the effective rate of tax on business assets
to 10%.
- abolition of indexation allowance, which was added to
the cost of assets owned since before 1998 to allow for
the effect of inflation - this has been frozen at the 1998
figure since then, but even the frozen figure will disappear
in 2008/09.
- introduction of a single flat rate of 18% to replace
taper relief, indexation allowance and the charging of gains
at the taxpayer's marginal rate of income tax (10%, 20%
or 40%).
- changes to the tax treatment of assets that have been
owned since before 31 March 1982 - in future, only the market
value at 31 March 1982 will be used to compute gains, and
the original cost will be ignored altogether.
A number of plans have been put forward as ways of preserving
the benefit of some of the reliefs before they are abolished.
The Budget did not include any measure to close this planning
down.
The changes will allow a very significant simplification
of the rules for computing gains on shares and securities.
In most cases shares in the same company will be "pooled
together" and treated as a single asset from which disposals
are taken at average cost.
Many other aspects of CGT - for example, the exemption of
the only or main residence and the deferral of gains using
reinvestment in Enterprise Investment Scheme shares - remain
unchanged. The taxation of gains of companies is also unaffected,
as they pay corporation tax rather than CGT.
| Tax Tip |
| If you are about to lose indexation or a high rate of
taper, take advice on action before 5 April 2008. |
Entrepreneurs' Relief
A new relief will be introduced for disposals after 5 April
2008 to compensate some of those who would have enjoyed an
effective rate of CGT of 10% under the taper relief regime
for business assets. The main rules are:
- the asset disposed of must be a business or an interest
in a business, shares in a company for which the individual
works and owns at least 5%, or related assets owned outside
such a business or company and disposed of at the same time.
- the assets must have been owned for at least a year.
- an individual will have a lifetime allowance of gains
of up to £1m which will be eligible for the relief
- this limit will be applied cumulatively to successive
disposals.
- the relief will operate by reducing the chargeable gain
by 4/9, cutting the effective rate of tax from 18% to 10%.
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