Introduction »

All rise - CGT is now in transition

Speculation of significant Capital Gains Tax (CGT) changes abounded in the period leading to the coalition’s Emergency Budget but what truths emerged?

No change was in fact announced in respect of the CGT annual exemption which allows the first £10,100 per tax year of an individual’s gains to be tax free. Announcements were made which affect the rate of tax which may be payable on any gains in excess of this amount and that change has an immediate impact.

The 2010/11 tax year is effectively split into two parts when determining what rate of tax applies.

• Gains arising before 23 June 2010 are generally taxed at a flat rate of 18%.
• Gains arising on or after 23 June 2010 could be taxed at either 18% or 28%.

In situations where Entrepreneurs’ Relief is available the effective CGT rate remains at 10% throughout 2010/11.

The details uncovered

From 23 June 2010, the CGT rate is determined by the level of an individual’s total taxable income (after personal allowance) and chargeable gains. In arriving at chargeable gains, allowable deductions such as losses, and the CGT annual exemption are taken into account. For 2010/11 where the combined amount is below £37,400 the chargeable gains will be taxable at 18%.

Gains or any parts of gains above this limit will be taxable at 28%.

An important aspect of these rules is that an individual can choose to allocate general capital losses and the annual exemption in any way that minimises their overall CGT liability. For example, it will make sense to allocate allowable losses and the annual exemption against gains that are facing a 28% CGT charge rather than gains which are facing an 18% charge. It is irrelevant whether any available capital loss arises before or after 23 June 2010.

Keeping and retaining good records will be essential to ensure gains are not only correctly calculated but that the CGT liability is minimised. In particular it will be critical that evidence is available so that the correct date of disposal can be clearly identified.

Introduction »