Capital Gains Tax Planning
Following recent announcements you may to be aware that the existing rules for Capital Gains Tax are due to change from 6 April 2008. The current rules will be replaced by a new simplified system whereby capital gains will be charged at a flat rate of 18%.
Under the current system (which applies until 5 April 2008) if you dispose of an asset, the Capital Gain is calculated by reference to the increase in value since its original purchase. Any periods of ownership from 1982 to 1998 carries indexation allowance which reduces the capital gain. Taper relief is then available for any period of ownership from 1998 onwards to further offset the capital gain. The rate of Capital Gains Tax currently varies depending on whether you are a lower or higher rate income tax payer and the amount of taper relief available, resulting in rates of 10% to 40%.
The proposed legislation states that if you own an asset which you have had prior to 1998 and you gift this to your spouse, this will crystallise the indexation allowance which effectively will increase your base acquisition cost to take into account the effects of inflation up to 1998. Even though you do not dispose of the asset until after 5 April 2008 you can still crystallise the indexation allowance by gifting the asset to your spouse.
This would be particularly appropriate to any investment property, holiday home or agricultural land. Please contact andy.farren@hboltd.co.uk if you would like to discuss further.