Capital gains tax

• abolishing taper relief and indexation
• introducing a flat rate of CGT of 18% and
• proposals to introduce an entrepreneurs’ relief giving a 10% tax rate on the first £1million of qualifying gains.

Annual exemption

The first £9,200 of gains made in 2007/08 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 to utilise their annual exemptions. 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 re-purchase overnight) of shares is no longer tax 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 (up to 5 April 2008).

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 2008 the capital loss can be used in 2007/08.

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.