Experts warn of new Capital Gains Tax changes

Mar 25 2008 by Sue Scott, Evening Gazette

ANYONE wanting to maximise their Capital Gains Tax (CGT) relief under the old regime, which will come to an end on April 6, needs to get their skates on, warn experts at the Middlesbrough office of accounting, business and tax advisory group, Vantis.

Key changes, which include the abolition of Business Asset Taper Relief and Indexation Relief and the introduction of a flat rate of CGT of 18%, mean that, from April 6, the rate of CGT on business assets will increase by up to 80% for many taxpayers and by substantially more than this for those individuals realising gains of about £100,000 or less.

Following intensive lobbying from the CBI and Federation of Small Businesses, the Chancellor gave way on introducing an entrepreneur's relief which will reduce the effective rate of tax to 10% on the first £1m of gains in respect of the disposal of a business, partnership interests and share holdings greater than 5% in trading companies where the individual is an employee or officer of the company.

But many gains will still be taxed at 18% going forward, with the gains themselves potentially higher as a result of the abolition of indexation allowance.

“The £1m is also a lifetime limit, with gains in excess taxed at the standard CGT rate of 18%,” pointed out Vantis’ Martin Barber. “It may, therefore, be worth planning to ‘preserve’ as much as possible of this £1m lifetime allowance for future gains or to ‘bank’ BATR on the fixture disposal of a business.”

For some individuals who held assets before April 6, 1998, indexation might be of significant value and it would be worth considering action before 5 April 2008 to preserve indexation allowance.

“There is only a very short time to take action before the new CGT regime comes into force on April 6. The complexity of these and other issues that need to be taken into consideration in planning the most effective action mean that it is essential for taxpayers to seek appropriate advice,” added Mr Barber.