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Proposed Flat Rate Of CGT Welcomed By Some In UK

by Jason Gorringe,, London

10 October 2007

Reforms to the UK's capital gains tax regime announced by UK Chancellor of the Exchequer, Alistair Darling in this week's Pre-Budget Report have received a mixed reaction.

The changes unveiled on Tuesday are designed to put the UK's CGT regime "on a more sustainable footing that is straightforward for taxpayers and internationally competitive", according to the Chancellor.

Under the new system, for disposals on or after 6 April 2008 there will be a single rate of capital gains tax of 18%. As part of this new system the annual exempt amount (currently GBP9,200) will remain in place, but taper relief and indexation allowance will be withdrawn.

For disposals before this date the current rules will continue to apply.

Commenting on the planned changes, which will mean that the ability to sell a business at a 10% tax rate after 2 years of ownership disappears, so that shareholders and owners of many businesses which had expected to pay tax at 10% will now have to pay the increased rate of 18%, Kevin Nicholson, tax partner and UK head of entrepreneurs and private companies at PricewaterhouseCoopers observed that:

"This will be a bitter pill for those that had built up their business with the expectation of selling out with only a 10% tax charge. It will be interesting to see how many of these businesses are sold in the period up to 5 April."

“Conversely those who held non-business assets such as many properties will see their tax rate fall from 24% to 18%. Similarly tax payers who would have faced the highest 40% tax charge on assets like buy-to-let portfolios and quoted share portfolios will be pleased by these new measures."

"As with all changes to the tax regime there will be significant winners and losers. The main losers would appear to be the private business owners that government has been seeking to encourage to grow in recent years."

Peter Vipond, Director of Financial Regulation and Taxation at the Association of British Insurers (ABI), observed meanwhile that:

“Today’s measures on Inheritance Tax and Capital Gains Tax should allow more people in this country to save and benefit from their savings, building wealth to address the challenges of later life, and to support the next generation from education to making a home.”

“The introduction of a flat rate of CGT of 18% will greatly simplify the tax system for individuals. Combined with the keeping of an annual allowance of GBP9,200 before tax is paid, this should provide encouragement to save beyond the current ISA wrapper."

The full text of Alistair Darling's Pre-Budget Report speech can be found in the Tax News Resources section.

To see today's news, click here.


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