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  2008 Budget - Capital Gains Tax

Major changes to CGT take effect from 6 April 2008. Gains will be calculated as the difference between proceeds and allowable cost. without adjusting for inflation (indexation allowance) or the length of ownership (taper relief). These reliefs, which have operated for many years, will disappear for disposals in 2008/09..

The gains of the tax year, after deduction of reliefs and the annual exemption, will be taxed at 18% (2007/08: the taxpayer's marginal rate of income tax, generally 20% or 40%). CGT is self-assessed, reported and paid in conjunction with income tax and the details are given in Personal Taxation.

Entrepreneurs' Relief

A new relief is introduced for 2008/09. It applies to disposals of assets owned for at least a year if they are:

  • a business or an interest in a business.
  • shares in a company for which the individual works and holds 5% of the share capital.
  • related assets used in the business/company and sold at the same time as the interest in the business/shares.

An individual will qualify for relief on all disposals until the lifetime total of such gains reaches 1m. The first 1m of gains will be reduced by 4/9, giving an effective CGT rate of 10% instead of 18%.

Other major CGT reliefs

A number of types of asset are exempt from CGT, including chattels (tangible movable property) which are bought and sold for less than £6,000; cars; and the taxpayer's only or main residence. A taxpayer with more than one residence can choose which is to be exempt, but it is not possible to apply the exemption to an investment property which is rented out.

Gifts to charity are not charged to CGT, and gifts of quoted shares and land also enjoy an income tax relief (see Personal Taxation).

Deferral of gains is allowed on some types of reinvestment, such as subscription for new EIS shares (see Investment Reliefs).