Capital Gains – November 2007
In his autumn statement the chancellor announced some important changes to capital gains tax. Until the legislation is released we cannot be certain as to exactly how the new rules will work but based on information provided to date there are strong grounds to suggest that if you are thinking of disposing of a capital asset in the next 4-8 months then careful consideration needs to be given as to whether to sell before or after April 6 2008.
Due to the complexity of the rules, there is no easy sell now or sell later ruling that can be given - but there are generalities that can be inferred from the proposed changes.
Ÿ If you are selling a business asset which you have held for more than 2 years, it will probably be in your interest to complete the sale before 6 April 2008;
Ÿ If you are selling a non-business asset (e.g. a second home or rental property) it will probably be in your interest to complete the sale after 6 April 2008;
Fleshing this out with numbers: -
Example 1 - sale of a business asset held for 2+ years with a gain of £100,000.
Current rules - taper relief @ 75% = £75,000 leaving taxable gain of £25,000
Exemption of £9,200 leaves tax on £15,800 @40%=£6,320
New rules - no taper relief.
Exemption of £9,200 leaves tax on £90,800 @ 18% = £16,344
Selling pre 6 April gives a tax saving of £10,024
Example 2 - sale of a non-business asset held for 10+ years with a gain of £100,000
Current rules - taper relief @ 40% = £40,000 leaving a taxable gain of £60,000
Exemption of £9,200 leaves tax on £50,800 @40%=£20,320
New rules - no taper relief.
Exemption of £9,200 leaves tax on £90,800 @ 18% = £16,344
Selling post 6 April gives a tax saving of £3,976
It will not always be quite so clear cut and in every case I must recommend that you seek professional advice in all cases.
One other thing to bear in kind - if you are considering changing to trading as a company it will probably be to your advantage to do so before 6 April to obtain the maximum advantage from the sale of your goodwill to your company.
It is interesting to note that the introduction of the taper relief rule was one of the first things Gordon Brown did as chancellor, and it’s removal was the first thing Alistair Garden did as his successor!
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