All Change on Capital Gains Tax?
One of the greatest surprises of last autumn's Pre-Budget Report was the radical proposal to reform capital gains tax (CGT). This was followed in January by a limited U-turn on some of the proposals affecting business owners. For individuals and trustees, the changes that are due to come in from 6 April 2008 mean:

•  The end of taper relief, which can currently reduce taxable gains on your business assets by 75% and on your non-business assets by up to 40%.
•  The launch of a new entrepreneurs' relief, which would produce a 10% rate tax on up to £1m of certain business-related gains.
•  The abolition of indexation relief, which currently applies to assets owned before April 1998.
•  The introduction of a new 18% flat rate tax to replace the current system under which gains are taxed as the top slice of income (or at 40% for trustees).

While the new structure was presented as a simplification, it is also a revenue-raising measure. The Exchequer expects to receive
an extra £700m by 2010/11. This does not necessarily mean you will pay more tax. Simplification is set to create both winners and losers (see box below).

These potential CGT changes make an initial review of your investments and investment strategy an urgent matter:

•  It could make sense to sell or gift investments before the end of the tax year if your current entitlements to taper relief and indexation relief would result in a lower CGT charge, but do take into account the investment issues.
•  But for some investments, you might want to delay realising a gain until after 5 April 2008, when your CGT rate could fall from 40% to 18%.
•  If you area higher rate taxpayer, a maximum 18% CGT rate would make many capital gains much more lightly taxed than income.
These proposals, and the subsequent revisions, remain highly controversial and may yet be altered in the spring Budget. The Financial Services Authority does not regulate tax advice.


CGT Snakes and Ladders

If you are a higher rate taxpayer with a second home or a buy-to-let investment, under the current proposals after 5 April 2008 the CGT rate on any gains when you sell the property falls to 18% from a current effective rate of up to 40%. At present after ten years' ownership, with full taper relief, the maximum rate would be an effective 24%.

If you own shares in your employer's company or shares listed on AIM, the abolition of business assets taper relief could mean a potentially higher tax bill on any capital gains you make.
Please Note: This newsletter is for general information only and is not intended to be advice to any specific person.