Capital Gains Tax

[Selkirk]

Does anyone know if the picture is any clearer on the CGT issue.

First it was changed to a flat 18% and then added was a concessionary fee of 10% for small business owners, on the first £1m they make through capital gains. However, I also saw somewhere that this concessionary fee of 10% does not and probably will not apply to the buy to let sector.

I tend to think this is how it'll be.

cheers

[plym77]

Hi Selkirk

Unfortunately it doesn't apply to the Buy to Let sector. That will continue to be a flat 18%. For some people this will be a better rate as Taper Relief for properties held for 10 years only gave an effective rate for 24% for higher rate taxpayers.

However if you were basic rate (and would be also on the sale of the property) then your original effective rate would have been 12%. Additionally, for those who held BTL prior to 5 April 1998 you will have been entitled to Indexation Relief too - and it is these two types of landlords who could be worse off.

Additionally it would appear that many 'business asset taper qualifying' commercial properties will also lose out under the new rules meaning their rates could be hiked by 80% or more. For property businesses, the entrepreneur relief will only apply to qualifying furnished holiday lettings or commercial premises sold at the same time as your trading business. Although I should caveat with the fact that I have not had final legislation to review at this stage, however this is what HMRC say:

http://www.hmrc.gov.uk/cgt/disposal.htm

Therefore, the 'Entrepreneur Relief' is OK for those who have qualifying businesses/shares in their companies and furnished holiday lettings, but even those now have a capped lifetime relief - meaning only the first £1m will attract a 10% relief, and this will be totted up over life. Therefore for example sale of business one might use £500k of the limited, leaving only £500k for the second.

Therefore whilst ER is good for some, overall it certainly isn't as generous as the old system!!

If you are likely to be worse off under the new system there is some tax planning that can be done to effectively bank the current tax reliefs but it has to be done and in place by 5 April 2008, otherwise all reliefs are lost. There are a few different methods and not all of them involve losing control of the assets. This can be particularly useful for those wanting to sell but unlikley to do so by 5 April 2008, but also for those who would like to retain their assets but will lose out under the new rules.

If anyone would like a review and advice on benefiting from the old tax rates whether on property or business, feel free to email me on sherena.glanton@target-accountants.com or telephone me on my direct dial 01225 486 359 to discuss your situation and we can go from there.

In the meantime, I hope this is useful!

Kind regards

Sherena Glanton

Chartered Tax Adviser