Government backtracks on CGT laws

[DaveB]

All very well but now they need to sort out the Income Shifting legislation.


THis has had virtually no media coverage at all and potentially has a far bigger impact on all kinds of family businesses, not just freelancers like us.

[Lucifer Box]

I might be being thick here (which is far from unheard of), but aren't these two statements contradictory?

The government has announced changes to capital gains tax (CGT), confirming that it will set a single 18% rate and cease taper relief from 1 April.

But Chancellor Alistair Darling also said there would be a 10% rate on gains of up to £1m, to help entrepreneurs.

So there are two rates then, or does this mean there might be some nasty small print attached to the 10% rate?

[Crossroads]

I can't think of any reason why it wouldn't.

Because our Government is great, that's why.

But "The entrepreneurs' relief will apply to gains arising on disposals of trading businesses" suggests we might be OK.

[THEPUMA]

This is unclear yet... As crossroads says, perhaps this 'allowance' will not apply to ESC C16 (dissolution of ltd companies)

I can't think of any reason why it wouldn't.

A bit more initial analysis for you from an email I have sent affected clients:-

http://www.hm-treasury.gov.uk/newsro...ress_05_08.cfm

The link above gives all of the information I have currently seen. Broadly, it appears that you will be entitled to a CGT rate of 10% on the first £1million of your lifetime capital gains and 18% thereafter. This is obviously good news, but not quite as good as the existing regime.

Currently, the effect of business asset taper relief is that the taxpayer's annual exemption is multiplied by 4, where the shares have been held for more than 2 years. This benefit will not continue under the new regime. The cost of this is approx £5K (assuming 2 shareholders, see example below).

Another reason to still close your company prior to 05/04/08 is that I guess that the £1million lifetime threshold will not count any disposals prior to 05/04/08 so if you anticipate that in the remainder of your lifetime, your gains will exceed £1million, there would still be an advantage to closing down your company prior to 05/04/08.

EXAMPLE - DISPOSAL PRIOR TO 05/04/08

Assume company liquidated on 05/04/08 resulting in residual proceeds available for distribution of £200K.
The company has 2 equal shareholders.

The company has been trading for over 2 years and is accepted by HMRC as being a trading company.

The shareholders have no other capital gains or losses in the 2007/08 tax year.

CGT liability = [£200K - (£36,800 x 2)] x 10% = £12,640

EXAMPLE - DISPOSAL AFTER 05/04/08 - NEW PROPOSALS

As above except that liquidation date is 06/04/08.

CGT liability = [£200K - (£9,200 x 2)] x 10% = £18,160

EXAMPLE - DISPOSAL AFTER 05/04/08 - OLD PROPOSALS

As above

CGT liability = [£200K - (£9,200 x 2)] x 18% = £32,688

[MrRobin]

So for those of us in the cheap seats, does this apply to shutting down the company and only paying 10% on the retained profit as before?

This is unclear yet... As crossroads says, perhaps this 'allowance' will not apply to ESC C16 (dissolution of ltd companies)

[VectraMan]

So for those of us in the cheap seats, does this apply to shutting down the company and only paying 10% on the retained profit as before?

[tim123]

"Taper relief currently allows some higher rate taxpayers to pay as little as 10% CGT on profits from the sale of assets in any unlisted company or publicly-listed firm they work for, as long as they have held them for two years.

It can also reduce the CGT liability for some basic rate taxpayers to 5%. "


How do I get the 5% thing?

In the same way as you get the 10% thing, except that the whole of your income (earned and unearned) for the year has to be below, (what is it?)about 35K.

HTH

tim

[Crossroads]

So, does this mean that from 2008 income shifters can accumulate their profit in ltdco, and then sell up with a 10% charge ?

Who are you going to sell to? I'll bet that ESC C16 (or similar) will not apply to this!!!

[hugebrain]

"Taper relief currently allows some higher rate taxpayers to pay as little as 10% CGT on profits from the sale of assets in any unlisted company or publicly-listed firm they work for, as long as they have held them for two years.

It can also reduce the CGT liability for some basic rate taxpayers to 5%. "


How do I get the 5% thing?

[moorfield]

So, does this mean that from 2008 income shifters can accumulate their profit in ltdco, and then sell up with a 10% charge ?

[Ruprect]

http://news.bbc.co.uk/1/hi/business/7205811.stm