The 2007 Pre Budget Report included an unexpected announcement covering the reform of Capital Gains Tax with effect from 6 April 2008. Further amendments were confirmed in the 2008 Budget.
There is now a single rate of 18%, coupled with the withdrawal of indexation allowance and taper relief for individuals and trustees. Other reliefs such as those relating to principal private residences, losses brought forward, Enterprise Investment Scheme and Venture Capital Trusts and business asset rollover relief will continue to be available. Assets acquired before March 1982 will be deemed to have had a cost equivalent to their market value at that date.
The Annual Exempt Amount (AEA) for 2010-11 remains at £10,100 for individuals and £5,050 for some trustees.
Entrepreneurs' Relief
Following strong opposition from the business community, the chancellor introduced an entrepreneurs' relief which gives an effective 10% rate for the first £1million of lifetime capital gains on disposal of trading businesses and on certain disposals of shares in trading companies. The relief actually works by reducing the gain by 4/9, leaving the residual 5/9 gain to be taxed at 18% (5/9 x 18% = 10%). The effective rate will be reduced by the application of the AEA.
The £1 million may be made up of any number of disposals after 5 April 2008.
With effect from 6 April 2010, the lifetime limit is increased from £1 million to £2 million. Where individuals or trustees have made qualifying gains above the previous £1 million limit before 6 April 2010, no additional relief will be allowed for the excess above the old limit. But if they make further qualifying gains after 5 April 2010, they will be able to claim relief on up to a further £1 million of those additional gains, giving relief on accumulated qualifying gains up to the new lifetime limit of £2 million.
Capital gains made by companies are dealt with separately under the corporation tax regime, and these arrangements have not changed.
