Capital Taxes

Capital gains tax (CGT)

The CGT annual exempt amount is increased in line with statutory indexation to £9,200 for the tax year 2007/08 for individuals, personal representatives of deceased persons and trustees of certain settlements for the disabled. The annual exempt amount for most other trustees is increased to £4,600. Every husband, wife, civil partner and child has his or her own £9,200 annual exempt amount.

The amount chargeable to CGT is added to the individual’s income liable to income tax and treated as the top part of that total. For 2007/08, CGT up to the starting rate limit will be charged at 10%, between the starting rate and basic rate limits at 20%, and above the basic rate limit at 40%.

A targeted anti-avoidance rule (TAAR) will be introduced in Finance Bill 2007 to counter schemes to create and use artificial capital losses to avoid tax. The measure will ensure that allowable capital losses are restricted to those arising from genuine commercial transactions. The changes will take effect in relation to capital losses arising on disposals on or after 6 December 2006, except in relation to corporation tax where an equivalent rule already has effect.

Inheritance tax (IHT)

As announced at Budgets 2005 and 2006, the IHT nil-rate band will increase to £300,000 in 2007/08, £312,000 in 2008/09 and £325,000 in 2009/10. It has now been announced that the IHT allowance will increase to £350,000 in 2010/11. The value of estates over and above the nil-rate band is taxed at 40%. The estimated number of taxpaying estates in 2007/08 will be about 35,000 – this is around 6 in 100 deaths.

Budget 2007 also introduces a change to the pre-owned assets rules to ensure that, in certain situations, people can elect back into the IHT regime after the normal self assessment deadline, rather than incurring the pre-owned assets charge.