Following the changes to the Capital Gains Tax (CGT) regime announced in the Pre-Budget Report, much opposition to the proposed abolition of taper relief has been voiced by industry bodies. The effective rate of CGT is currently determined by the taper relief rules, which differ according to whether the disposal is of a business or non-business asset.
Currently, in general terms, the effective rate of CGT on the disposal of business assets decreases from 40% to 10% after two years, and decreases from 40% to 24% after 10 years of ownership for non-business assets. From 6 April 2008, a flat rate of CGT of 18% will apply on the disposal of all assets, irrespective of the length of ownership.
There will be some winners and some losers, depending on the type of asset(s) you own, your plans for that asset(s) in the future, the cost history of the asset and the effect of other changes announced such as the withdrawal of indexation allowance.
Based on the changes announced, and the information we have so far, the table attached summarises a number of potential courses of action which should be considered now. These options will be developed when we receive more details of the proposed changes: the draft legislation has yet to be published. There have been, as you will have noticed, many calls for the Chancellor to rethink his plans for the abolition of taper relief and other measures announced. It is possible that he will heed these calls, and indeed that there may be transitional arrangements announced. Recent press reports suggest that the Chancellor is considering introducing an exemption from CGT on sale proceeds of up to £100,000, for individuals selling their business on retirement. It is reported that this exemption will be available to individuals only once and that it will not be available to those who are not retiring. This is however, merely speculation: there has been no official confirmation from the Treasury or HM Revenue & Customs. We will update you when we know more.
Tax is always an important consideration, but the decision of how and when to dispose of assets (particularly business assets) should always be based on commercial considerations.
It is essential that you seek professional advice on the options open to you, based on your particular circumstances, before taking any action. Please contact us if you wish to discuss this issue in further detail.