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Contents Income tax |
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Annual exemption The CGT annual exemption for 2000/01 will be £7,200. For most trusts the exempt limit will rise to £3,600. |
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Rates of tax Capital gains continue to be treated as the top slice of income. For 1999/00, CGT is charged at 20% where the gains (after taper relief) when added to total income do not exceed the basic rate limit (£28,000) and 40% on any excess over £28,000. The 10% starting rate of tax is not available. For 2000/01 CGT rates will be properly aligned with those applying to savings income - ie tapered gains are charged at 10% where gains plus total income do not exceed £1,520; 20% between £1,521 and £28,400, and 40% on any balance. |
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Taper relief rates CGT taper relief was introduced following the 1998 Budget to reduce the CGT charge the longer an asset has been held prior to disposal. The present taper reduces the gain charged to tax over a 10 year period for business and non-business assets. The maximum taper reduces the effective CGT rates for a higher rate taxpayer from 40% to 10% for business assets and from 40% to 24% for non-business assets. For disposals on or after 6 April 2000 a new four year maximum taper period for business assets will apply for holding periods from 6 April 1998. The additional bonus year for assets held at 17 March 1998 will be consolidated into the four year taper period. It will not be added for disposals on or after 6 April 2000. For example a disposal on 6 April 2000 of a business asset held at 17 March 1998 will qualify for two years’ taper relief under the new rules. The new taper relief table for business assets is as follows:
For non-business assets, the existing ten year taper period, together with the additional bonus year for assets held at 17 March 1998, will continue to apply. |
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Definition of business asset Business assets are currently defined as those used for the purposes of a trade and shareholdings in trading companies (quoted and unquoted) in which the holder can exercise 5% or more of the voting rights if a full-time employee and 25% or more otherwise. The definition of a qualifying shareholding for business asset taper relief purposes will change from 6 April 2000 to include: all shareholdings held by all employees (both full and part-time) and others in unquoted trading companies; all shareholdings held by all employees (both full and part-time) in quoted trading companies; lshareholdings in a quoted trading company where the holder is not an employee but can exercise at least 5% of the voting rights. Where shares only qualify as a business asset from 6 April 2000, an apportionment of the eventual gain will be necessary so that part qualifies for business taper and the balance for non-business taper. Comment The extension of business asset taper and the increase in business asset taper rates is far more generous than expected. It means that a disposal of a business asset held on 5 April 1998 can be made as early as 6 April 2002 and, for a higher rate taxpayer, benefits from an effective 10% rate of CGT! |
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Gift relief Gift relief permits capital gains to be deferred on gifts of certain assets so that the donor is not charged to tax on the gain. Instead the gain is effectively taxed when the recipient of the gift subsequently sells the asset. As announced on 9 November 1999, it is no longer possible to defer capital gains on the transfer of shares or securities to companies. This is an anti-avoidance measure to stop the use of schemes which exempt the gain on the gift rather than defer it. Comment The measure is restricted to gifts of shares and securities to companies. Consequently, gift relief is still available where: certain unquoted shares and securities are transferred to individuals or trusts; and business assets (other than shares) are transferred to companies. |
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Further anti-avoidance measures Certain measures effective from 21 March 2000 are intended to stop the avoidance of CGT by individuals exploiting the tax rules for trusts. The measures will: apply a charge when certain interests in trusts are sold; stop trust losses being offset against gains of people who have bought their way into a trust; apply a charge when trustees incur debt and advance funds from the trust as part of a scheme to avoid CGT; prevent tax avoidance effected by bringing an offshore trust onshore and taking it offshore again; make effective current legislation where gains are sheltered through the double tier of a trust and an offshore company. |
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Company gains : a new rollover relief The current business asset rollover relief regime applies to both companies and individuals. It enables gains on certain assets (land and buildings, fixed plant, machinery, goodwill etc) to be deferred by rolling them over against the cost of replacement assets. Shares are not included in the range of assets which qualify for rollover relief. The Government is considering extending rollover relief to companies’ gains on substantial (more than 30%) shareholdings held in trading companies. The Inland Revenue will publish detailed proposals for consultation. Top of page / contents |