Capital Gains Tax - latest reforms
21 January 2008
Following the major reforms to Capital Gains Tax in October, Scott Burkinshaw at Barber Harrison & Platt provides an update on the latest developments.
After consultation with business, HMRC has announced the final changes to capital gains tax. The measures are summarised below.
• Gains arising before 6 April 2008 on disposals of business assets, such as shares in unquoted trading companies, are broadly taxed at an effective rate of 10%. (This rate relies upon the availability of full business asset taper relief). Indexation allowance currently reduces the gains to be taxed at 10%.
• Gains arising upon the disposal of all assets on or after 6 April 2008 will be taxed at a flat rate of 18%. Indexation allowance and taper relief will no longer be available to reduce gains.
• This means that gains arising upon assets such as unquoted trading company shares will be taxed at a higher rate if disposed of on or after 6 April 2008 than if they were disposed of before that date.
• As a slight softener, from 6 April 2008, an ‘entrepreneurs’ relief’ will result in the first £1m of any subsequent lifetime qualifying gains being taxed at only 10%. Gains in excess of £1m will be taxed at the new 18% rate.
• Entrepreneurs’ relief will broadly be available to people of all ages, who have met the relevant conditions for one year, upon:
- The disposal of whole or part of a trading business
- The disposal of shares in a trading company for persons holding at least 5% of the shares and voting rights in the business if that person has been an employee of the company
- The disposal, at the same time as sale of the business, of associated assets such as company premises owned by directors.
Summarised below are some planning ideas to consider in view of the above changes:
1. Those holding assets that are currently classed as business assets may wish to consider disposing of them before 6 April 2008 if any gains arising are >£1m. Where gains are <£1m, it may still be worth considering selling assets to utilise indexation allowance accrued to date.
2. Where an outright sale of business assets is not commercially desirable, they may be transferred to a trust before 6 April 2008 to create a gain upon transfer thereby capturing indexation allowance accrued to date along with a 10% tax rate.
3. Company owners may be able to dispose of some shares in their company, thereby cashing in part of their investment in the company at a 10% tax rate without losing control of the company.
4. Those holding assets that are currently classed as non-business assets may benefit from the changes and should therefore consider deferring the sale of such assets until 6 April 2008. The loss of accrued indexation allowance should be considered though.
5. Transferring assets between spouses may be beneficial.
There are many additional factors to consider for each of the above options, so specific advice should be sought if any are of interest. If you would like discuss how these changes may affect you, please contact Scott Burkinshaw (scott.burkinshaw@bhp.co.uk) or call us on 0114 2667171.