Capital Gains Tax

Main impact of Pre-Budget October 2007

The Changes

• The way in which capital gains tax will be calculated for individuals, personal representatives and trusts is to change fundamentally from 6 April 2008.
• The main changes are that the current taper relief and indexation allowance will no longer be available for assets disposed of from 6th April 2008.
• Instead a flat tax rate of 18% will be applied to the gain to calculate the tax payable.
• Whilst there will be winners with the new rules, there will also be many who will be worse off.
• Limited companies will not be affected by the changes.

How does it affect you?

• The majority of business owners will be worse off when they come to sell their business, or perhaps when they pass the business down the generations.
• Commercial property owners in the main will be worse off when they come to dispose of the property.
• Owners of residential property, holiday homes or other assets that are not classed as business assets, may well be better off under the new rules in most circumstances.

A small business sold for say £50,000 would pay £1,320 tax under the current rules, and pay £7,344 under the new rules.

Who should take action?
All business owners should consider their position prior to 6th April 2008, especially:

• Business owners who are looking to sell within the next 5 years,
• Business owners who are considering transferring their business from a sole trader or partnership into a limited company,
• A business going for a few years and the value likely to have increased
• All owners of commercial property should consider their position prior to 6th April 2008, if they are to take advantage of the current lower tax rates.
• Anyone looking to dispose of non business assets prior to 6th April 2008 may wish to consider the impact of the new rules and whether in fact it is worth delaying the disposal to take advantage of the flat 18% tax rate.