The annual exemption for 2008/09 is £9,600 (2007/08 £9,200). This rate applies for individuals, personal representatives of deceased persons and trustees of certain settlements for the disabled. The annual exempt amount for most other trustees is £4,800.

The rate of capital gains tax for 2008/09 is 18%, reduced from a maximum for 2007/08 of 40%.

The Taper Relief and Indexation Allowances will no longer be available.

By virtue of Taper Relief, there was previously an effective rate of tax of 10% on gains made on the sale of business assets held for more than 2 years. Such gains will be taxed now at 18%.

However to take the edge out of abolition of the Taper Relief there is now a new entrepreneurs' relief which will reduce the effective tax rate on some gains to 10%.

Entrepreneurs' relief

Now that that draft legislation is available it is clearer what will - and what will not - attract relief.

The relief is available where an individual (or in certain circumstances, a trustee) makes a 'material disposal' of his or her business. This includes:

The sale of the business as a whole,
The sale of an interest in a partnership, and
The sale of shares in a qualifying company.

To qualify for relief on the sale of shares, the shareholder must own at least 5% of the ordinary share capital in the company, and as a result can exercise 5% of the voting power, and be an officer or employee of the company. The company must be a trading company or holding company of a trading group as currently defined for business asset taper relief.

The conditions of ownership need to be in place for at least 12 months before the disposal for relief to be available.

Where the material disposal comprises a sale of shares or of a share in a partnership, the disposer can also claim relief against the gains on the disposal of an asset which was used in the business. The latter disposal can take place within three years of the disposal of the business interest, although the relief is restricted where rent has been charged on the property.

The sale of assets without the sale of the business, or the cessation of trade will not qualify for relief. This will particularly affect farmers who sell off parcels of land, which presently qualifies for taper relief, but will not attract any relief after 5 April 2008.

As already announced, the relief will be available against gains on the disposal, and will be limited to a lifetime amount of £1,000,000.

The gains subject to relief will be scaled by deducting 4/9 of the amount, leaving 5/9 in charge which effectively provides a 10% rate of tax on the gross gains.

« Back to Tax Tips