Capital Taxes
Capital
gains tax (CGT)
Exemptions
and rates of tax
The annual exempt amount has been
increased in line with inflation for 2006/07 to £8,800 (2005/06 £8,500) for
individuals.
The CGT liability is calculated
as if the gains in excess of the annual exemption were the top slice of the
individual’s savings income.
Trusts
The annual exempt amount is
increased to £4,400 (2005/06 £4,250) for most trustees. The exemption is divided
where there are several trusts created by the same settlor. Capital gains of
trusts are taxed at the special trust rate of 40%. Changes are being introduced
to bring the main trust-related definitions and tests for tax on income and
chargeable gains into line with each other, mostly with effect from 6 April
2006.
Bed and
breakfasting
The Government is to introduce
measures, applicable to acquisitions on or after 22 March 2006, which will
prevent avoidance of CGT by schemes exploiting the'‘bed and breakfast'
identification rules. The rules were designed to prevent individuals and others
disposing of shares and acquiring identical holdings shortly afterwards for the
purpose of realising a capital gain free of tax (because it is covered by the
annual exempt amount) or a capital loss which can be set against other gains
while still, in effect, holding on to the investment. The amendment will close a
loophole and prevent advantages being gained by persons who are 'Treaty
non-resident'.
Inheritance tax (IHT)
Exemptions
and rates of tax
It was confirmed that the IHT
threshold would rise to £285,000 for 2006/07 and £300,000 for 2007/08. To
continue to provide certainty for families, it was further announced that the
threshold will be increased by more than the expected statutory indexation to
£312,000 in 2008/09 and £325,000 in 2009/10.
The rate of IHT remains unchanged
at 40%, with a reduced rate of 20% for chargeable lifetime transfers. It was
estimated that the number of taxpaying estates in 2006/07 will be about 37,000,
around six in 100 deaths.
Trust
reforms
The IHT exemptions which
presently apply to ‘accumulation and maintenance’ trusts (A&Ms) and/or ‘interest
in possession’ trusts (IIPs) will be available only in certain prescribed
circumstances. Otherwise IHT charges will apply in the same way as for all other
trusts, preventing them from being used to shelter wealth from IHT. In effect
all lifetime transfers into A&M or IIP trusts will be immediately chargeable to
IHT and the usual regime of ten-yearly and exit charges will apply, unless the
trust is set up for a disabled person. There will be transitional arrangements
for existing trusts.
Pension
reforms
Measures will be introduced
to legislate an existing IHT concessionary practice for pension scheme members
who die under the age of 75, and to set out how IHT is to be charged on death on
or after age 75 where funds are held in an alternatively secured pension.
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