The tax laws are changing for individuals which will have an impact on your investments. Act before 6 April 2008 to take advantage of these changes.

The Chancellor of the Exchequer announced major reforms to the capital gains tax (CGT) regime in the Pre-Budget Report 2007. This alert highlights those changes, who are likely to be the winners and losers and what action may be taken to mitigate your overall tax liability.

What Are The Changes?


The centerpiece of the reform is the abolition of taper relief which will be replaced by a new flat 18% CGT rate. The other changes include the withdrawal of indexation allowance for assets owned before April 1998, the introduction of automatic rebasing of assets held in March 1982 and a simplification of the share identification rules.

How Does Taper Relief Work?


Taper relief operates, in very broad terms, by reducing the effective CGT rate on disposals of business assets (such as shares in trading companies or assets used in a business) from 40% to 10% after two years of ownership and for non-business assets (such as investment properties) from 40% to 24% after ten years of ownership. 

When Will The Changes Apply?


The changes will apply to:

  • disposals of any asset (irrespective of the type of asset and length of ownership) made on or after 6 April 2008; and
  • gains relating to previous disposals which have been deferred by means of rollover or holdover reliefs and which become chargeable to CGT on or after 6 April 2008.
Has The Government Announced Any Concessions?


The proposals have been widely criticised, particularly in light of the absence of any prior consultation and, in light of such criticism, the Government is considering offering some concessions. However, we are currently waiting for the details together with the draft legislation to be published.

Who Is Affected?

The changes only apply to individuals, trustees and personal representatives who are subject to CGT. Companies that are liable to UK corporation tax in respect of their chargeable gains are not affected by these proposals.

Who Are The Winners?

  • Property investors and second home owners
  • Shareholders and option holders in investment companies
  • Persons with cash earn-outs
  • Beneficiaries of offshore trusts with stockpiled gains

And The Losers?

  • Shareholders and option holders in trading companies
  • Partners owning goodwill
  • Holders of loan notes and paper earn-outs
  • Employee shareholders
  • Shareholders in AIM companies

Is There Anything We Can Do?

Depending on your personal circumstances and objectives, there are a number of planning opportunities that may be used in order to minimise the tax impact of these proposals. However, you must act quickly because the arrangements will need to be in place before 6 April 2008. Possible planning opportunities that may be used to reduce your overall tax liability include the following:

  • Taxpayers who are holding assets with inherent gains, such as where shares in a company have already been sold or exchanged for shares and/or loan notes may consider triggering a disposal or redeeming the loan notes prior to 6 April 2008 in order to secure the benefit of business asset taper relief.
  • Partners in professional practices nearing retirement may consider retiring before 6 April 2008 and being engaged as a consultant in order to minimise the tax charge on their exit from the partnership.

Shareholders in companies, particularly family companies, may wish to transfer their shares to a trust or some other vehicle to bank the current 10% tax rate, particularly where a corporate disposal is expected in the not too distant future, but post 6 April 2008.

  • It may be beneficial to ascribe a maximum value to paper earn-outs which are currently being negotiated on corporate sales due to occur before 6 April 2008.
  • A taxpayer considering inheritance tax planning may be wise to bring forward proposed gifts of business assets to the current tax year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.