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NO GAIN WITHOUT PAIN!

 On 6 April 2008 the government dramatically changed the way in which individuals are taxed on Capital Gains 

 

As a general rule, you have to pay Capital Gains Tax (CGT) if you sell something for more than you paid for it.

The sale of Company Shares, land and buildings, antiques or paintings, or part of a business is the sort of things that will usually attract a liability to CGT.

However, you may also have to pay CGT if you give something away.

Exceptions to the tax

Everyone is entitled to a CGT Annual Exemption. If your gains come to less than £9,600 (for the tax year 2008-2009) you will not have to pay any CGT. It is important where appropriate to plan to use and not lose this exemption.

Recent changes

From 6 April 2008 the Government has made the following key changes:

·         There is now a single CGT rate of 18 per cent.

·         31 March 1982 value will be used in calculating the capital gain on all assets acquired before that date.

·         Indexation allowance has been withdrawn for individuals.

·         Taper relief has been abolished.  Put simply, this relief lowered the rate of CGT the longer you owned the asset.  There were two rate of taper relief one for business assets and one for non-business assets.

This change has resulted in an increase of at least 80% in the CGT liability on the sale of many businesses. 

·         Entrepreneur’s Relief has been introduced.  This was as a result of the outcry by businessmen as to the penal affect of the abolition of Taper Relief.

 

Entrepreneur’s Relief

 

Entrepreneur’s Relief (ER) is a complicated relief introduced to attempt to meet the concerns of smaller businesses.

 

The key features of ER are:

Where ER applies the rate of CGT is limited to 10%

ER is a lifetime allowance of £1 million per individual applying to all relevant gains after 5 April 2008.Gains in excess of that amount will be taxed at the standard rate of 18%.

Relates principally to the disposal of all or part of a trading business or shares in a trading company.

It can also apply to assets used in a trade if there is a corresponding cessation of the trade or a disposal of the business / shares (but only if no rent has been charged; otherwise the relief is eliminated or restricted).

You need to have owned the business or shares for at least one year prior to disposal.

If the disposal is of trading company shares then you must have held at least 5% of the ordinary voting shares in the company and have been an officer or employee of the company (but you do not need to have been full-time). You must have met these conditions for at least 1 year prior to disposal.

 

The above changes can have a massive impact on the tax consequences of a business disposal However with adequate planning their affect may be reduced.

 

If you believe that you are affected by any of the issues raised above and would like to discuss them further please contact Patrick Lydon on 01204 534031 or email us via our website at   www.warings.co.uk.

22nd August 2008

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