Capital Gains Tax "tapers off"
At present, if you hold business assets for at least two years, the operation of taper relief means that the amount of capital gains tax you pay on sale is discounted to 75% of normal rates, in effect, just 10% tax for a higher rate taxpayer, or 5% for a basic rate taxpayer.
The Pre-budget report signals the abolition of taper relief and it will be replaced with a flat rate of capital gains tax of 18%. Indexation allowance for individuals and trustees, but not for companies, is also to be abolished from 6 April 2008. This will simplify the capital gains calculations, but it does not hide the fact that the potential 10% tax rate payable on the sale of businesses will jump to 18% from 6 April 2008.
Therefore if you plan to sell a business or an asset used by a business for example a commercial letting, which you have owned for at least two years, you may save at least 8% tax if you sell before 6 April 2008.
However, the proposed flat-rate is good news for anyone selling a non-business asset, such as a buy-to-let property, or quoted shares. At present a capital gains tax bill for non-business assets can be cut by up to 60% of normal rates, which works out at 24% for higher rate tax payers and 12% for basic rate taxpayers. If you expect to make a large gain on a non-business property, it may be better to complete the sale on or after 6 April 2008 to save at least 6% on your tax rate, possibly more.
It is of course more than likely that this position may change before April 2008 and if you would like any further information on this or to discuss the possible sale of any interest in your business please do contact us.
Adam Edwards, Partner Company Commercial Department
