CAPITAL GAINS
Capital Gains Tax Reform
As previously announced, major changes to capital gains tax are to be included in Finance Bill 2008. The proposed changes are to apply to disposals on or after 6 April 2008 and will not apply for the purposes of corporation tax on chargeable gains. The main changes are as follows.
- A single tax rate of 18% will apply to individuals, trustees and personal representatives.
- Taper relief will be withdrawn both for disposals on or after 6 April 2008 and deferred gains coming into charge on or after that date.
- Indexation allowance will be withdrawn.
- All assets held on 31 March 1982 will be deemed to have been acquired on that date at market value (i.e. rebasing will apply automatically to all assets).
- Simplified identification rules for shares and securities will apply.
Relief on Disposal of a Business
A new capital gains tax relief (‘entrepreneurs’ relief’) will be introduced for disposals on or after 6 April 2008. The relief will apply to the disposal by an individual of:
- all or part of a trade carried on alone or in partnership;
- assets of such a trade following cessation; or
- shares or securities in the individual’s personal trading company (as defined).
Where a disposal of shares or of an interest in the assets of a partnership qualifies for relief, an associated disposal of assets owned by the individual and used by the company or partnership also qualifies for relief.
Trustees will be able to claim relief on certain disposals of business assets or shares where a qualifying beneficiary has an interest in the business concerned.
The relief will be available where the relevant conditions are met throughout a period of one year and will operate by reducing the amount of qualifying gains by four-ninths (so that the gains are effectively charged to CGT at 10%). Relief will be subject to a lifetime limit of gains of £1 million, but disposals before 6 April 2008 will not count towards the limit. Relief given to trustees will count towards the limit of the qualifying beneficiary.
Transitional rules will apply to allow relief to be claimed in certain circumstances where a gain made before 6 April 2008 is deferred and becomes chargeable on or after that date.
Consequential Changes following Transferability of IHT Nil-rate Band
As announced in the Pre-Budget Report, legislation will be introduced in Finance Bill 2008 to allow any IHT nil-rate band unused on a person’s death to be transferred to the estate of their spouse or civil partner who dies after 8 October 2007. With effect from 6 April 2008, an amendment will be made to TCGA 1992, s 274 (which provides that where the value of an asset in a deceased person’s estate has been ascertained for IHT purposes, that value also has effect for CGT purposes) to ensure that it will not have effect where the valuation of an asset does not have to be ascertained for IHT purposes on the death of an individual. So, for example, if the IHT valuation of an asset does not have to be ascertained until the death of the surviving spouse in order to establish the nil-rate band that may be transferred, TCGA 1992, s 274 will not require that value to be used for any CGT calculation.