Capital Taxes
Capital gains tax (CGT)
The Chancellor confirmed the new standard rate of 18%, coupled with the
withdrawal of indexation allowance and taper relief for individuals and trustees
with effect from 6 April 2008. Other reliefs, such as those relating to
principal private residences, losses brought forward, Enterprise Investment
Scheme and Venture Capital Trusts, and business asset rollover relief, will
continue to be available. Assets acquired before 31 March 1982 will be deemed to
have had a cost equivalent to their market value at that date.
In certain circumstances the CGT base cost of an asset is tied to its value
ascertained for inheritance tax (IHT) purposes. A correction made necessary by
the IHT changes noted below means this rule will not apply where the value does
not have to be ascertained for IHT purposes on the death of an individual.
The Annual Exempt Amount (AEA) will be increased for 2008/09 to £9,600 for
individuals and £4,800 for some trustees.
CGT: Entrepreneurs' Relief
Following strong opposition from the business community to the proposed CGT
changes, the Chancellor has introduced an Entrepreneurs' Relief which gives an
effective 10% rate for the first £1million of lifetime capital gains on the
disposal of trading businesses and on certain disposals of shares in trading
companies. The relief actually works by reducing the gain by 4/9, leaving the
residual 5/9 gain to be taxed at 18% (5/9 x 18% = 10%). The effective rate will
be reduced by the application of the AEA.
The £1million may be made up of any number of disposals after 5 April 2008
and, unlike the former retirement relief (on which the rules are based), there
is no minimum age qualification. There is, however, a one year qualifying period
and other conditions to be met. Trustees will also be able to claim, jointly
with a 'qualifying beneficiary'.
Capital gains made by companies are dealt with separately under the
corporation tax regime, and these arrangements have not changed.
Inheritance tax (IHT)
As previously announced, the IHT standard threshold has been set at £312,000
for 2008/09. This defines the upper limit of what is commonly known as the IHT
nil-rate band.
In the October Pre-Budget Report, the Chancellor announced a new concession
for married couples and civil partners. With effect from second deaths on or
after 9 October 2007 the unused percentage of the nil-rate band from the first
death estate can be carried forward and added to the nil-rate band available to
the second. The combined threshold for couples is therefore set at a maximum of
£624,000 for 2008/09.
This new arrangement applies no matter how long ago the first death occurred.
For example:
On the first death none of the original nil-rate band was used because
the entire estate was left to a surviving spouse. Then if the nil-rate band when
the surviving spouse dies is £350,000 that would be increased by 100% to
£700,000
If on the first death the chargeable estate was £107,500 when the
nil-rate band was £215,000 (1997/98), then 50% of the original nil-rate band
would be unused. If the nil-rate band when the surviving spouse dies is
£350,000, then that would be increased by 50% to £525,000.
Pension savings
The Finance Bill 2008 will propose legislation to ensure that tax-relieved
pension savings diverted into inheritance using scheme pensions and lifetime
annuities are subject to unauthorised payment tax charges and, where
appropriate, IHT. In addition, IHT protection to savings in overseas pension
schemes will be restored.
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