Darling Unveils CGT Back-down Today
24 January 2008
Chancellor Alistair Darling made the u-turn today with the announcement of ‘entrepreneurs relief’ after coming under fire by the business community following the October pre-budget report.
Small business owners will benefit from the entrepreneurs relief concession although the increased rate of capital gains tax is still expected to take effect from 6 April 2008. Business owners now have very little time to prepare before these changes come in.
Brian King, Tax Partner at Ellacotts LLP explains: “From 6 April 2008 indexation allowance and taper relief is to be withdrawn and a single rate of capital gains tax of 18 per cent is proposed to be introduced.”
“Under the current rules capital gains tax is charged as the top slice of an individual's income. This could give a rate of 40 per cent for capital gains tax. Taper relief is available to reduce the capital gain based on the period of ownership and whether the asset was a business asset. Business assets, owned for a period of 2 years qualify for 75 per cent taper relief. This means a maximum effective rate of CGT of 10 per cent for individuals disposing of business assets after 2 years of ownership.”
“The proposed introduction of a single rate of CGT at 18 per cent has produced an almost unprecedented reaction from the business community who see this as a significant increase on the 10 per cent rate for business assets. The entrepreneurs relief has been awarded as a concession, in an attempt to repair relations and will deliver a 10 per cent rate of CGT up to the first £1,000,000 of lifetime capital gains. The relief will apply to gains arising on the disposal of trading businesses and to gains arising on certain disposals of shares in trading companies. Individuals will be able to claim relief for gains made on multiple disposals up to a cumulative total of £1,000,000. Gains in excess of the £1,000,000 lifetime limit will attract the 18 per cent rate of CGT. At this stage these are brief details available. It will be a matter of waiting to see if more detailed guidance will be published.”
Brian concludes: “Business owners will now have only a small window of opportunity to plan effectively in order to establish whether they should do something by 5 April 2008.”
For further information or advice on this matter please contact Brian King on 01295 250401 or e-mail bking@ellacotts.co.uk.
