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Major changes to the taxation of capital gains on individuals, trustees
and personal representatives will take effect from 6 April 2008. Capital
gains realised by companies are not affected by the changes announced.
For disposals on or after 6 April 2008 there will be a flat rate of tax on
the capital gain of 18%. The annual exemption, currently £9,200 for
individuals, will remain but indexation allowance and its successor, taper
relief, will be scrapped. The 18% rate will apply irrespective of whether
the asset was a pure investment, such as quoted stocks and shares, or a
business asset, such as shares in an unquoted trading company.
Other changes relate to assets held at 31 March 1982. From 6 April 2008 the
market value at 31 March 1982 has to be used. Previously the actual cost
could be used if it led to a lower capital gain. Also, a disposal of an
asset held at 31 March 1982 which had a capital gain held over will not have
half the held over gain relieved as is currently the case.
The complicated rules relating to the matching of shares when they are sold
are to be modified from 6 April 2008. From that date, with one exception,
all shares of the same class held by a taxpayer will be treated as one asset
and the costs aggregated, irrespective of when they were acquired. The
exception relates to shares which were acquired on the same day as a
disposal or within the next 30 days. These rules remain to avoid bed and
breakfasting which increases the base cost of shares for capital gains tax
purpose.
It was announced that most other reliefs, such as the relief when selling
the main home, and rollover relief on business assets, will remain from 6
April 2008. The use of capital losses against future capital gains will
continue as before.
For disposals up to 6 April 2008 the existing rules will apply. Draft
legislation is to be published later this year.
Our view
Taper relief was introduced from 6 April 1998 to remove from charge a
percentage of the capital gain depending on length of ownership and the
type of asset being sold. It replaced indexation allowance which
effectively increased the base cost of the asset to reflect inflation.
Since taper relief was introduced there have been numerous changes to
the legislation covering it to prevent perceived abuses and to correct
anomalies with the legislation. The removing of the relief and replacing
it with a flat rate of tax greatly simplifies the capital gains tax
legislation. A simplification of tax legislation is always welcomed if
it is done appropriately and replaces unwieldy and unnecessarily
complicated existing legislation.
One of the drivers for the change was the benefit obtained by wealthy
shareholders who were paying an effective rate of tax of 10% on some of
their investments. A move to 18%, whilst an increase, is still an
attractive rate of tax to pay compared to the top rate of income tax of
40%. |
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