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New Capital Gains Tax Entrepreneurs’ Relief Alastair Darling announced on Thursday the introduction of a new capital gains tax (CGT) entrepreneurs’ relief from 6 April 2008. The Chancellor had been under considerable pressure to rethink the radical changes to the CGT regime that he announced in his first Pre-Budget Report in October last year. The sudden and sweeping nature of the CGT reforms sent shock waves through the business community and led to vociferous representations being made to the Government by a range of business leaders and professional bodies. The introduction of a new CGT relief is certainly welcome news. The extent of the relief and what its impact will be in practice, however, must be carefully considered before deciding whether this has been an embarrassing climb-down for the Chancellor or if it merely reflects a minor change to appease the ‘baying crowds’.
The changes announced last October – a reminderThe radical changes to CGT announced back in October remain intact and draft legislation has now been released. The following changes will take effect in just over 2 months time from 6 April:
The new entrepreneur’s relief will, therefore, be taking its place as a welcome addition rather than an amendment to these changes.
What is entrepreneur's relief?It is proposed that the relief will apply to those who realise capital gains on the disposal of:
There will inevitably be a number of conditions to be satisfied for a disposal to qualify for the new relief. The following points can be taken from the press notices that accompanied the Chancellor’s announcement:
Please click here for the full article covering how the relief will work in practice and the potential impact for you.
What should I do now?The introduction of a new tax relief should always be welcomed (even when it goes against the Government policy of tax simplification!). It is arguable that the Chancellor has introduced this new relief as a concession to those representations made by the by the business community without the embarrassment of having to withdraw the changes announced in October. This new relief may stop some taxpayers in their tracks who were thinking about disposing of certain business interests prior to 5 April 2008 in order to benefit from the generous 10% effective rate currently available to them. Instead now, if the capital gains expected on the sale of their business assets falls under the £1 million lifetime allowance, they will still enjoy a 10% CGT rate post 5 April. But, the level and extent of the new relief still does not compensate for the savings available through a combination of indexation allowance and taper relief. At first sight it would appear the maximum CGT tax saving will be capped at £80,000 (i.e. the difference between the 10% and 18% rates on the first £1 million of gains). Taxpayers (and more importantly their advisers!) will now, more than ever have to keep accurate records of qualifying disposals to monitor when the £1 million limit has been reached. One of the early criticisms of the new relief is that it offers little consolation to serial entrepreneurs making gains in excess of this limit over the course of their working lives. Having said that, the new relief should offer tax planning opportunities, especially for those involved in a family business. It remains important to consider taking action prior to the abolition of indexation allowance and taper relief on 5 April. You might, for example, be in a position to “bank” your accrued indexation allowance on assets you have owned for a long time by arranging a simple tax-free transfer of title to your spouse. Before acting however, remember it is important that the tax tail is not allowed to wag the commercial dog! – in other words if you would not have acted for commercial reasons be careful of doing so just for tax reasons.
Further informationThe information set out in this ezine is based on the documents released by the Treasury following its recent announcement and is intended only for guidance. We would strongly recommend you seek professional advice before taking any action. The draft legislation is not currently available and as always the devil will be in its detail. For further advice in relation to how these and any other changes will impact, please speak to your usual Anderson Strathern contact or contact Colin Henderson, Bruce Connelly or Martin Campbell.
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