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Capital gains tax reforms September 2007

The Chancellor in his pre-budget report has announced substantial changes to the taxation of capital gains tax. Currently when you dispose of an asset, you have to consider several layers of legislation bolted onto each other including:

  • Budget day value 1965 reevaluations
  • March 1982 re-valuations
  • Indexation
  • Taper relief
  • And in particular whether assets have been held as business or non business assets.

If you currently own a non business asset for 2 years you can have a maximum capital gains tax rate of 10% and with allowances this rate can be significantly lower.

This is a horrendously complicated legislation and very few people fully understand it. From 6t” April 2008 there is a new very much simplified regime where the capital gains tax payable will be 18% of the profit. There will still be a capital gains tax annual exemption available but there will be no indexation and taper relief and it will not matter how long assets have been held.

Simplified legislation is something that is very welcome. The new legislation will however mean that the tax rate on disposal of assets will change dramatically. As a very great generalisation business owners and employee shareholders will end up paying more tax and investors in quoted securities and residential property will be pay less tax. However it will depend on your individual circumstances.


What Do I Need To Do Now?


If you are contemplating any transactions that can occur pre or post 5th April 2008 it will be essential to review the tax consequences to ensure that the transaction is undertaken on the right side of the 5th April 2008. In addition there will be circumstances where it will be very important to undertake transactions under the old regime prior to 5th April 2008 and this is also relevant to the transitional trust legislation which expires on 5th April 2008.

If you are likely to undertake capital disposals or restructuring in the next 2 to 3 years this is an opportunity to consider your options and whether or not something needs to be done prior to 5th April 2008. At present as far as we know this change is only relevant to individuals rather than companies but it will affect individuals as shareholders of companies.

Contact Adrian Berkeley on 0161 371 0011 for further details.

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