CAPITAL GAINS TAX CHANGES - Are you a winner or a loser?

Although the major reforms to the Capital Gains Tax regime announced by the Chancellor in his 2007 pre-budget statement will not take effect until April 2008, the changes are so far wide ranging that many people, and in particular business proprietors, should consider whether they should take steps now to mitigate the adverse effects of these changes.

In brief, Taper Relief and Indexation are to be abolished under a single rate of tax of 18% for all (the usual annual exemptions will however continue to apply).

Inevitably these changes will mean that some people will be substantially worse off and in particular it is business owners who are likely to suffer most.

In some instances, the loss of Indexation and benefits of Business Asset Taper will result in Capital Gains Tax almost three times more after April 2008 than if the asset were sold before that date.

However, owners of non business assets are likely to be substantially better off.  An owner of a buy-to-let property paying higher rate tax may see a reduction of more than half of the tax payable if that person waits until the 6th April 2008, particularly if the asset has been held for a relatively short period of time.

The general rule is that where an asset does not qualify for Business Asset Taper relief and has been held for less than three years, there will always be a saving of tax by waiting until the new rules take effect before selling.

Clearly, under these new rules, some people will pay more tax (in some cases three times more) and others less.

The watch word here is that if you own an asset which is likely to be subject to Capital Gains Tax then you should consider now which side of the financial year end the sale should be made.

As always with any form of tax, the rules are complicated and it is difficult to apply general principles.  Each case is likely to be different and the best advice is that early consideration of the likely impact of these changes should be given and you should always seek professional advice as to the individual consequences of diposing of an asset.