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Business Newsletters - Spring 2007
Capital Gains Tax
The availability of taper relief at 75% on business assets after just two years of ownership means that the effective rate of capital gains tax (CGT) for a higher rate taxpayer is often only 10%.
Annual exemption
The first £8,800 of gains made in 2006/07 are CGT-free being covered by the annual exemption. Note that husband and wife both have their own annual exemption, as indeed do children. A transfer of assets between spouses may enable them both to fully use this. Consider selling assets standing at a gain before the end of the tax year on 5 April to use the annual exemption. Bed and breakfasting (sale and repurchase) of shares is no longer effective but there are two variants which still work:
- sale by one spouse and repurchase by the other
- sale followed by repurchase via an ISA.
These techniques may also be used to establish a loss that can be set against gains. The timing of such disposals may be critical because losses are used against gains before applying taper relief.
Tip
On the other hand if a disposal is deferred until a date after
5 April 2007 then not only will next year’s annual exemption
be available but the tax payable will be due a whole year later.
Additional taper relief may also be available.
Two homes?
If you have two homes then consider making an election so that future gains on your ‘main residence’ are exempt from CGT. Talk to us if this is relevant for you.
Other ideas
A capital gain can be deferred if the gain is reinvested in the shares of a qualifying unquoted trading company via the Enterprise Investment Scheme.
A capital loss can be claimed on an asset that is virtually worthless. Where the asset is of ‘negligible value’ by 5 April 2007 the capital loss can be used in 2006/07.
Moving abroad can take you outside the CGT net. However it is clearly not a decision to be taken lightly and requires very careful planning. Please talk to us if this is an area of interest for you.
No CGT planning should be undertaken in isolation. Other tax and non-tax factors may be relevant, particularly inheritance tax in relation to capital assets. Please talk to us soon if there are any issues in relation to CGT planning you wish to discuss.
