FL Memo Ltd © 2007

Tax Memo 2007-2008 Newsletter Issue 1

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Capital gains tax

 

Capital gains tax reform

See TM ¶5220+, ¶7376

Legislation is to be introduced in the 2008 Finance Bill which will radically alter the existing capital gains tax regime. The new rules will apply to all disposals made on or after 6 April 2008 (and held-over gains coming into charge on or after this date).

In outline, the changes to be introduced are:

- a new single flat rate of 18% for all chargeable gains This rate will apply to individuals, trustees and personal representatives. (It does not affect companies, which will continue to be taxed to at the corporation tax rate on their chargeable gains);

- the withdrawal of indexation allowance (for assets that were acquired before 6 April 1998);

- the withdrawal of taper relief;

- simplification of the share identification rules whereby, from 6 April 2008, all shares of the same class in the same company will be treated as forming a single asset (a “share pool”) irrespective of when they were originally acquired;

- all assets held on 31 March 1982 will be deemed to have a base cost equal to their March 1982 value; and

- abolition of halving relief (¶5371, ¶6077, ¶6126).

 

The following examples are provided to illustrate the new regime (using, for illustrative purposes, the 2007/08 rates).

Example 1. In 1995, Mr E purchased a holiday home in Devon for £100,000. He sells it in July 2008 for £250,000. The CGT due is:        £ Proceeds  250,000 Less: Cost price (100,000)    150,000 Annual exemption     (9,200)     140,800     Tax due @ 18%     25,344       2. In 1960, Mrs S purchased some shares costing £500. In March 1982, they were worth £450. In August 2008 she sells the shares for £25,000. The CGT due is:            £ Proceeds  25,000 Less: Cost price     (450)    24,550 Annual exemption  (9,200)    15,350     Tax due @ 18%    2,763   3. In 2006, Mr D had a loss of £30,000 on the disposal of an asset. He had no other gains on which to set that loss against. In June 2008, he sold his holiday home at a gain of £80,000. The CGT due is:        £ Gain on holiday house  80,000 Less: Brought forward losses (30,000)    50,000 Annual exemption  (9,200)    40,800     Tax due @ 18%    7,344       4 In November 2007, Miss E enters into an unconditional contract to sell assets to Mr Y in May 2008. Because the contract is unconditional the disposal takes place for CGT purposes in November 2007 and the existing rules for indexation allowance, taper relief and tax rates apply. (If the contract had been conditional, the disposal would have taken place when the conditions were satisfied in May 2008. Consequently the new rules would then apply).

 

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