Pre Budget Report 2007 - Capital Gains Tax (CGT)
In response to the Pre Budget Report 2007, please find below the thoughts of Cathy Corns, Partner at Mercer & Hole and contributor to SME Plus Blog...
From 6 April 2008 there is to be a dramatic change in the calculation of Capital Gains Tax (CGT). Essentially there will be a flat rate of tax of 18% based on the difference between sale proceeds and cost. This applies irrespective of the type of asset held; the length of time held; removes relief for indexation totally (effectively halving the tax base cost for assets held pre March 1982) and removes a few other mitigation measures.
The Chancellor confirmed that the existing rules will apply until 5 April 2008. depending on whether you have business assets that qualify for full taper relief (an effective rate of tax of 10%) or non-business assets (best possible rate 24%) you have either a five month window to realise a gain or a short period to wait before you sell.This is complicated and you need to review the CGT position on assets urgently.
The changes outlined do not apply to companies.
Comments (12) Read through and enter the discussion with the form at the end
I appreciate that taper and index relief will be gone from April.
However at this time i have a second property which i did live in and now rent out.
Therefore i currently qualify for Private residence relief AND Lettings relief which means i currently would pay NO CGT.
Can anyone confirm if these two reliefs will still be available after April?
Many thanks
Paul.
Hello Paul,
Thank you for your question.
Yes the press release indicates that these reliefs will continue to be available as they are now.
Lisa
If a 100% shareholder in an unquoted trading company sells all his shares now in return for say initial cash and an unascertainable earn-out to be satisfied by the issue of QCBs in say October 2008 - how is the deferred gain calculated if the QCBs are encashed say May 2009?
IR manual CG58070 suggests that the gain is calculated immediately before the QCBs are issued eg October 2008 in the above example - therefore under the proposed rules taper relief would not be available and the gain would be taxed at 18% in 2009.
Is this correct?
Many thanks
David
Paul
Many thanks for your comment.
You are indeed correct.
Lisa
It would seem that anyone who has deferred a previously paid Capital Gain (taxed with full taper relief and as a business asset at 10%) via an EIS investment could now face an effective tax charge of 18% if the gain is revived post April 08. But there does seem to be some uncertainty about this. Has this situation been confirmed? And if so, is there any way to overcome this somewhat unfair situation?
Many thanks
David
David
We think your understanding is correct. We will let you know when there is any updated information on the new legislation. Re-deferral would appear to be the only mechanism open to you.
Regards
Lisa
You state that the proposed CGT changes do not apply to companies. Does that mean that the existing regime whereby companies pay corporation tax on gains computed under the 'old' rules will certainly continue? For example a property investment company which owns a property from pre 1965 - will that still have the benefit of indexation and time apportionment (pre/post 1965) together with the options of using 1965 and 1982 values in order to calculate the gain to be subject to corporation tax?
Also if all of the above are expected to continue post April 2008 would you be prepared to hazard a guess for how long?
Carol
So far as we know without the draft legislation, the present regime for companies will continue indefinitely.
Regards
Lisa
I have been divorced for over 10 years.I bought a second property about 10 yeras ago for £100K and to-day it is worth £400K. Can I tranfer the property to my two sons (not retaining any interest in the property for myself) without incurring any tax liability (CGT or Inheritance tax) as long as I live for 7 years - (the 7 year rule)?
Jenny
Probably OK for IHT but Capital Gains Tax is likely to be payable.
Thanks
Lisa
Dear Lisa
My father died last year and my brother and I are about to be granted probate on my father's estate but are undecided on whether to sell his home now or rent it out. There will be a chargeable gain but we do not know how much as yet.
If we sell after 5 April 2008 will the gain be charged at 18% or 40% and would it make any difference if we rented it out for a year or so? My brother is also considering buying me out of my half and living there for a a year. Can he elect to live there and sell as his principal residence with no CGT if he sells in mid 2009?
thank you for your time
Debbie
If you sell after 5 April the tax rate is 18%; however it makes no difference whether it is let or not unless it has been a main residence during the period of ownership. If it becomes brother's main residence (he may need to make an election) his gain might be covered but there may be a gain on the sale from you to him. We need to do the maths.
Remember, any gain will be calculated by reference to the probate value, not the original cost.
Thanks
Lisa