CGT reform from April 2008
24/10/07 Filed in: Tax Planning | All
The Chancellor is to simplify the capital gains tax system by making various changes to the
legislation, including the scrapping of taper relief and indexation relief, and the introduction of a flat
rate charge of 18%.
The changes will be introduced in the Finance Bill 2008 and affect all disposals made by individuals,
trustees and personal representatives from 6 April 2008. Companies liable to corporation tax in
respect of their chargeable gains will NOT be affected by the changes. UK life funds should
therefore still be able to claim indexation relief in respect of gains made on the fund investments.
The main changes are:
• From 6 April 2008, gains on disposals will no longer form the top slice of an individual's
income. They will instead be taxed at a flat rate of 18%. The Annual Exempt Amount will
remain (currently £9,200),with the allowance for 2008/09 to be set in the 2008 Budget.
• Trustees and personal representatives will continue to receive half of the Annual Exempt
Amount, and will also be taxed on gains at the rate of 18% rather that the current rate
applicable to trusts of 40%.
• Taper relief will be withdrawn from 6 April 2008. This will be of particular significance for
those currently claiming maximum business taper relief which results in an effective rate
of only 10% on gains. For this group of people, the rate changes represent a rise to 18%,
and consideration may need to be given to a program of disposals prior to 6 April 2008 to
benefit from taper relief.
• Non-taxpayers who have gains in excess of the Annual Exempt Amount will also suffer in
respect of gains that would currently fall into the starting rate of tax (currently 10%).
• Indexation relief will be withdrawn from 6 April 2008. Those who have assets acquired
prior to April 1998 which are entitled to a significant amount of indexation relief may also
want to consider the possibility of benefiting from this by making disposals prior to 6 April
2008.
• Assets acquired prior to 31 March 1982 will automatically assume a cost equal to
the market value as of that date. It will no longer be possible to elect a cost for calculation
purposes relating to the actual cost of acquisition (in some circumstances, this may have
resulted in a lower gain).
• Simplification of the share identification rules. The scrapping of taper relief and indexation
allowance will make the current complicated system easier. From 6 April 2008, all shares
of the same type in the same company, whenever acquired, will be treated as forming a
single asset, or 'share pool'. Only the rules relating to same day acquisitions and
disposals, and bed and breakfasting rules will remain.