Capital Gains Tax Updates
The Chancellor has now made some long awaited concessions on the 18% flat rate of CGT announced in October’s pre-budget report. Alistair Darling introduced a lower rate of 10% for lifetime gains of up to £1 million on holding and trading companies, providing the owner has at least a 5% stake. But investors in other assets, that used to benefit from taper relief, will see that tax rate rise from as little as 5% to 18% come April.
For 270,000 investors in their companies Save As You Earn share schemes this will mean a higher tax bill when they sell their shares. Under existing rules, these taxable gains qualify for full taper relief if the shares have been held for two years, which reduces the tax due to 25% of the normal rate i.e. 10% for higher rate tax payers, 5.5% for basic rate tax payers. This will now rise to 18%.
Therefore, any advisors who have clients in Save As You Earn share schemes should advise them of the situation, so that they can sell before April if they wish to avoid the higher rate of tax.
Investors in shares traded on the Alternative Investment Market (AIM) will also lose their taper relief. While this removes the tax advantages of AIM shares over main market holdings, they are still not eligible for inclusions in ISAs.
When Gordon Brown became Chancellor, one of the first things he undertook was a major reform of CGT including introducing taper relief to reduce the gain on assets. The first thing his successor does is kick all that into touch, abolish taper relief and introduce a flat rate of 18%. He has also abolished indexation allowances that allowed you to adjust the cost of assets based on inflation and reduce the gain in that way. There are some winners, but mainly losers. Chancellor Darling has significantly increased the burden of Capital Gains Tax.
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