Unless you qualify for Entrepreneurs’ Relief, all taxable capital gains in excess of the annual exemption, presently £10,100, would be taxable at 18%.
There has been speculation that this rate will increase to discourage schemes to have income treated as capital gains. Next year, 2010-11, the top rate of income tax will be 50%, with some marginal rates up to 61.5%. With capital gains tax rates at 18% and in some cases 10% (if a gain qualifies for Entrepreneurs’ relief) and an annual exemption for individuals currently up to £10,100 a year, the temptation to steer earnings towards capital gains and take advantage of legitimate planning devices, seems inevitable.
The Pre-Budget report will no doubt clarify these expected changes and as soon as we have up-to-date information you will be the first to know.
In the meantime a quick reminder of the types of gain that qualify for Entrepreneurs’ Relief.
The relief has been available since the 6 April 2008 when indexation relief and taper relief were withdrawn for individuals.
Basically the relief is available in respect of:
- gains made on the disposal of all or part of a business (this includes a sale of shares in a qualifying company)
- gains made on disposals of assets following the cessation of a business, and
- gains made by certain individuals who were involved in running the business
The first £1 million of gains that qualify for relief will be charged tax at an effective rate of 10 per cent. Gains in excess of £1 million will be charged at the normal 18 per cent rate.
An individual will be able to make claims for relief on more than one occasion, up to a lifetime total of £1 million of gains qualifying for Entrepreneurs’ Relief.
If you are interested in receiving more information regarding current tax planning in this area please call.