Alistair Darling made a short statement in the House of Commons on 24 January 2008, which confirms that the Government intends to press ahead with its proposed reforms to capital gains tax, to take effect from 6 April this year.
The basic proposal is to change the taxation of individuals and trustees by:
• abolishing taper relief
• abolishing indexation allowance
• Replacing the current system that bases the tax payable on a persons marginal rate of tax with one where everyone pays at 18%
As expected the announcement included confirmation of a degree of relief for business. There will be a lifetime 10% rate band for the first £1m of qualifying gains. Gains in excess of £1m will suffer tax at 18%Qualifying gains will be:
• Disposal of all or part of a trading business carried on alone or in partnership
• Sale of shares in a trading company provided one owns 5% of the company and works in it as an employee or officer.
The Chancellor was at pains to point out that the existing other reliefs, including rollover relief are to remain.
HMRC have published draft legislation and explanatory notes in conjunction with this statement.
The concession to business is welcome and will keep many broadly in the same position as at present as far as their businesses are concerned. But it remains likely that many taxpayers will have to consider carefully the implications of these rule changes.
For assets held long time the loss of indexation relief is disappointing as it will lead to an immediate hike in the potential liability in many cases. The more successful entrepreneur may not view a £1m 10% as a material compensation for loss of business asset taper relief.
