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HN7 - UK Capital Gains Tax: Revised 10% Rate for Qualifying Disposals
On 24 January 2008, the British Chancellor confirmed the fundamental Capital Gains Tax (CGT) proposals - the abolition of taper relief and indexation relief, and the introduction of a fixed 18% rate, which will be applicable from 6 April 2008. The draft legislation introducing the original changes announced in October 2007 has now been published.
The only change to the proposed reforms is that the first £1 million of gains realised by an individual on disposal of all or part of a business will continue to be taxed at 10%.
Background
The changes, which apply only to individuals and not to companies, were originally announced in the October 2007 Pre-Budget Report. They removed taper relief (for both business and non-business assets) and what remains of the old indexation allowances and set a flat rate of 18% Capital Gains Tax. The current Annual Exempt Amount remains unchanged.
The New Relief Available
The main features of the recently announced relief are detailed below:
- The relief applies a reduction to the gains of 4/9, so that the effective rate of tax is 10% (rather than 18%).
- The relief applies to disposals of trading businesses, partnership interest and shares in trading companies and for certain "associated disposals" of assets.
- Where the disposal is of shares or securities in a trading company, the individual must be an officer or employee of the company and own at least 5% of the ordinary share capital with a concomitant minimum 5% of the voting rights (there are similar rules for trading groups).
- There is a qualifying period of one year's ownership.
- The £1 million is a lifetime allowance. It is not as yet clear if this allowance starts on 6 April 2008 or whether previous disposals will be taken into account.
- The relief is available to individuals and also to trustees. It applies to trustees where a beneficiary has an interest in possession and is an employee of the company or is involved in carrying on the business. In the case of trustees, the £1 million limit will apply jointly to trustees and to beneficiaries.
- There are no restrictions of relief in respect of non-trading assets being held by the business being disposed of.
Currently there has been no mention of anti-avoidance regulations, but it can be anticipated that measures will be included when the draft legislation relating to this revision is published.
Please contact the Dixcart office in the UK, for advice as to how you might be able to mitigate the proposed changes to Capital Gains Tax in the UK: laurence.binge@dixcart.co.uk