Capital Gains Tax Changes and how they affect you.
Katy Fordham
Katy is a paralegal in our Commercial Law team and is studying for her LPC at the London College of Law having completed her law degree at the University of Surrey.
Katy assists Tony Fisher in commercial matters and in particular acquisitions, partnership work and drafting and negotiating commercial contracts.
Intellectual property is a particular interest to Katy who works on matters including the registration and enforcement of intellectual property rights together with drafting and negotiating licensing and confidentiality agreements.
Aside from her commercial work Katy also undertakes Commercial Litigation work including general commercial disputes such as contractual claims and the recovery of debts.Katy is based at our Charter Court office on Severalls Business Park.
CAPITAL GAINS TAX CHANGES AND HOW THEY AFFECT YOU. ACT NOW IF YOU WANT TO AVOID AN 80% INCREASE IN TAX IN 2008
The controversial proposed changes to the capital gains tax regime announced by the Chancellor in the pre-budget report on 9 October have resulted in nationwide protests and lobbying the outcome of which has yet to be successful.
The proposed changes will have a particular impact for clients who have been considering selling their businesses and this article analyses how to minimise that impact by making decisions now about the timing of any sale..
What are the changes?
If you were to sell your shares in an unlisted company under the existing regime the amount of capital gains tax you are liable to pay will be reduced depending upon how long you have owned the shares. This is because the sale of a business asset such as shares in an unlisted company attracts business asset taper relief which reduces the capital gains tax payable on any taxable gain depending upon how long you have owned the shares.
If you are a higher rate taxpayer and have owned your shares for two years or more the taper relief reduces your rate of tax payable on the gain from 40% to 10%. There is no reduction if you have owned your shares for less than one year. If you have owned the shares for between one and two years the rate of tax payable on the gain falls between 20% and 40%.
The effect of the proposed changes is that you will no longer benefit from taper relief and any gains which you make on the disposal of any of your assets will be subject to tax at 18% irrespective of how long you have owned them. In addition to this you will not benefit from any taper relief accrued before the changes.
Another detrimental change is the abolishion of indexation allowance. Under the existing regime indexation allowance applies to assets owned between 31 March 1982 and 5 April 1998 and its purpose is to remove inflationary gains from capital gains calculations so your tax rate is applied to a smaller gain. The benefit of this allowance will disappear in 2008
When will these changes come into effect?
The changes will come into effect from 5 April 2008. Therefore, if you are considering selling any of your business assets you must do so before 5 April 2008 if you are to benefit from the existing taper relief and any indexation allowance available. If you sell your business assets after 5 April 2008 in most cases you potentially face paying 80% more tax.
How can FJG assist you?
As part of our Commercial Law expertise Fisher Jones Greenwood LLP can offer you further specialist legal advice as to how the capital gains tax changes will affect you.
If you are considering disposing of any of your business assets before the capital gains tax reforms in order to take advantage of the current taper relief and indexation allowance available our specialist lawyers can provide you with clear coherent advice and guide you through the process.
If you require any advice or would like to know more about the commercial services we offer please visit www.fjg.co.uk or telephone Katy Fordham on 01206 835230.