The effects of the Capital Gains Tax changes
in the Pre-Budget Speech:

This article is due for revision following the announcement on 24th January
that a 10% allowance will be introduced on the first £1m of business gain.
(This lifetime allowance will not apply to non-business assets.)

In his first Pre-Budget speech, the Chancellor, Mr Darling, dropped the bombshell that from April 2008 there will be the following changes to CGT:-

  • The ending of both taper relief and indexation allowance for disposals on or after 6th April 2008

  • Instead of a range of effective capital gains tax rates varying from 5% to 40%, there will be a single rate of 18% from 6th April 2008

  • All assets owned at 31st March 1982 will be deemed to have been acquired on that day at their open market value at that date

  • The so-called 50% relief available to reduce deferred gains, relating at least in part to a period prior to 31st March 1982 is to be abolished from 6th April 2008

The CBI and other business representatives lobbied hard against these proposals at the beginning of November. At the end of November, the Chancellor re-emphasised his commitment to change to this new flat rate regime and draft legislation is expected before Christmas.

How does this affect small businesses? The big business world of the corporate entities are not affected by these proposals: it will in particular affect small to medium-sized businesses and all unlisted companies.

So, how much of an affect would this have if you sold an asset after 6th April 2008?

The table below shows that there would be a 150% increase in the CGT due by delaying selling or crystallizing a business capital gain until after April 2008

1998/99
2007/08
2008/09
Cost
(£100,000)
(£100,000)
(£100,000)
Indexation Allowance
(£100,000)
(£100,000)
N/A
Proceeds
£450,000
£450,000
£450,000
Gain
£250,000
£250,000
£350,000
Less Retirement Relief
(£250,000)
N/A
N/A
Assessable gain
NIL
£250,000
£350,000
Tax Payable
NIL
£25,000 (@10%)
£63,000 (@18%)


We work with some of the top specialist tax advisers in the country who are able to put structures in place now to avoid such an increase in tax due.

If you feel this would affect you and would like to have the opportunity to meet with one of our Senior Consultants, please call us now on 0870 78 78 626 and we can arrange to meet with you, at your convenience.