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Capital gains tax changes

Despite the Chancellor stating that he wanted to keep the capital gains tax regime simple, and as a result he was not interested in introducing any form of indexation or taper relief, the changes announced are not so straightforward.

  • From 23 June 2010 there will be 3 rates of capital gains tax

18% for basic rate taxpayers

28% for higher rate taxpayers

10% on first £5M of lifetime gains qualifying for Entrepreneurs Relief

The rate of 18% will apply to non-business capital gains realised prior to 23 June 2010

  • The rate of 28% will apply to gains made by trustees and personal representatives on or after 23 June 2010 as well as for those individuals paying the £30,000 remittance basis charge
  • Capital losses and the annual exemption (unchanged from £10,100) can be set-off in the most beneficial way
  • Capital gains which have been deferred into an Enterprise Investment Scheme investment, will be taxed at the new tax rates where the deferral ceases on or after 23 June 2010

How the rates will work for an individual is best illustrated with an example:

An individual makes non-business capital gains of £15,000 on 20 June 2010 and £50,100 on 25 July 2010. The individual has taxable income for 2010/2011 of £27,400.

a) The gain made on 20 June 2010 is taxable at 18%.

b) The annual exemption of £10,100 is claimed against the gains of £50,100 leaving £40,000 taxable. The balance of the basic rate income tax threshold is £10,000, so the first £10,000 gain will be taxable at 18%, with the balance £30,000 gain taxable at 28%.

NOTE the gain made pre 23 June 2010 is ignored when considering the balance of the income tax threshold.

  • The lifetime limit for Entrepreneurs Relief has been increased from £2M (£1M prior to 6 April 2010) to £5M for qualifying gains made on or after 23 June 2010. Where individuals or trustees made gains in excess of £2M before 23 June 2010 then no additional relief will be allowed for this increase. However, if further qualifying gains are made on or after 23 June 2010, then Entrepreneurs Relief will be available on a further £3M of gains to take the maximum up to the new lifetime limit of £5M.

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