Debbie Griffiths, Entrepreneurial Business partner at
The Chancellor's Pre-Budget Report announced sweeping changes to the capital gains tax regime.
Taper relief, both "business asset taper" (reducing gains by up to 75%) and
"non-business asset taper" (reducing gains by at most 40%) will be abolished
from 5 April 2008.
Instead all chargeable gains (after deducting losses and annual exemptions)
will be taxed at 18%.
In practical terms this will mean that the effective rate of tax suffered on
capital disposals will move from anything between 10% and 40% to a flat 18%.
Clearly this will mean that there will be winners and losers.
Those holding assets (say shares in a private trading company) that
currently benefit from full business asset relief may prefer to trigger a
disposal of shares before 5 April so that they benefit from a 10% rate.
Those holding assets that have no accrued business asset relief may wish to
wait and trigger disposals only after 5 April.
Subject to the introduction of any new anti avoidance rules, therefore:
those wishing to accelerate disposals may seek to trigger gains by, say,
gifting shares to trusts, or may look to accelerate a third party sale. The
use of short term "revertor to settlor" trusts to trigger gains whilst
avoiding IHT may once again become popular.
those wishing to defer gains may seek to exchange shares for paper instead
of selling for cash, disposing of the paper only after 5 April. This
technique may not be successful even under existing ant avoidance rules.
The real winners
would appear to be those who hold non trade assets or listed investments
Non domiciliaries are also likely to be adversely affected, not only by
changes to the remittance rules, but also importantly by bringing non
domiciliaries within anti avoidance rules that catch offshore gains that can
currently be remitted without gains being taxed.
Capital gains tax