Money
Tax and benefits
Capital gains tax reform
In his first Pre-Budget report, new Chancellor Alistair Darling announced wide-ranging but fairly straightforward changes to capital gains tax as it affects individuals, writes Mike Beattie
The main changes
* From the start of next tax year on April 6 2008 all taxable gains by individuals (and partnerships and trustees) will be taxed at the rate of 18%
* Taper relief and indexation will be abolished
Winners and losers
On the face of it this looks attractive, but the headline tells only part of the story. The fact is that while the rate of tax will fall, the amount of the gain on which the tax is calculated will increase due to the abolition of taper relief.
In fact the Chancellor estimates that he will increase his tax take from capital gains in tax year 2008-9 by £350million, rising to an additional £900 million in 2010-11. The additional money may come from both the business and private community.
Until 2008-9 those who have business assets to sell, like shares in trading companies, business premises or goodwill can generally reckon that the maximum rate of tax that they will pay on those sales will be 10% because of generous tax reliefs introduced in 1998 by Gordon Brown. Selling a business asset after April 5 2008 will mean tax at 18%.
Similarly, those who have built a portfolio of investments, perhaps for their retirement, will also pay 18% capital gains tax on sales after April 5 2008. Sales made before that date which have been held for 10 years are taxed at either 12% or 24%, depending on the circumstances of individual taxpayers. So those with smaller capital gains will see an increase in their tax, while the tax on larger gains will fall.
Advice
Most people prefer to avoid tax if possible and further details of the new rules will emerge in the coming weeks. Taxpayers should always take advice on their particular circumstances before acting, and older married taxpayers in particular should take note of changes in inheritance tax announced at the same time before finalising their plans.
* Mike Beattie FCA is a director of Tax Savings Limited an online tax service for those with two or more homes - www.taxsavingslimited.com - Mike's opinions are his own and for general information only. Always seek independent financial advice.
