The withdrawal of indexation allowances for Capital Gains Tax (CGT) purposes from 6 April 2008 was announced in the Pre-Budget Report (PBR), along with the abolition of taper relief and the introduction of a flat rate of CGT of 18%.
For some individuals who held assets before 6 April 1998, indexation allowance may be of significant value, for example:
- farmers and landowners who owned land at 31 March 1982; and
- owners of chattels with a high value at 31 March 1982.
Where an individual is unlikely to hold such assets through to death, it may be worth considering taking action before 5 April 2008 to preserve indexation allowance, for example:
- by transferring the asset to the owner's spouse on a no gain/no loss basis; or
- where an asset is jointly owned or the individual does not wish to pass the asset to his/her spouse, by selling or gifting the asset to a trust. In such cases, the Stamp Duty Land Tax and Inheritance Tax implications must be taken into account.
These potential courses of action are based on the information we have so far: the draft legislation has yet to be published.
It is essential that you seek professional advice on the options open to you, based on your particular circumstances, before taking any action. Particular issues may arise, for example, if the asset was owned before 31 March 1982, if there has already been a transfer between spouses of an asset held before 31 March 1982, or if the spouse to whom the asset is transferred is not domiciled in the UK. Please contact us if you wish to discuss this in further detail.
Please also see: The Removal of Taper Relief for Capital Gains Tax - What does it Mean For You?