Capital gains shake-up
Barbers' Partners Mike Taylor and Bob Oakes have commented on the recent Government announcement in the first pre-budget statement and the pronouncement of the significant change to the Capital Gains Tax system.
Barbers' Partners Mike Taylor and Bob Oakes have commented on the recent Government announcement in the first pre-budget statement and the pronouncement of the significant change to the Capital Gains Tax system.
The proposed Finance Act of 2008 will introduce a new single rate of 18 per cent for CGT, which will have significant ramifications for individuals, trustees and personal representatives.
From the April 6, 2008, a flat rate of 18 per cent will be chargeable to nearly all non-exempt chargeable disposals. Furthermore, indexation and taper relief, which take into consideration the increased value of assets post 1982, are to be abolished.
In effect, for assets which qualify for business taper relief, which includes the disposal of agricultural land and whole farm enterprises, the taxable rate is to increase from 10 per cent to 18 per cent.
As Mike Taylor explains: "For assets acquired prior to 1982, the proposed new legislation will base the chargeable gain calculation on the 1982 value of the assets rather than the current system which calculates the 1998 value using the indexation allowance, plus the deduction of business taper relief.
"The worked example below explains the impact which the 2008 Finance Act will have on farmers; in essence CGT bills are likely to be trebled.
"If you have been thinking of retiring or selling to enter into a new venture, think no more, CGT legislation is out to get British farmers. For assets which qualify for business taper relief, it is likely to be highly advantageous to dispose of them now, before any new legislation impacts on the gain after tax."
As Bob says: "Barbers are here to help. If you are thinking of disposing of land or your holding, or simply wish to seek advice on possible CGT changes, contact Barbers' rural consultancy team on 01630 652314 or e-mail agricultural@barbers-online.co.uk."
Example: Farm sold in 2007. 300 acres for £2.1million (£7,000/acre). Acquired 1975. Vacant possession.
Current CGT calculation:
Base value 1982 £2,000/acre = £600,000.
Indexation 1982 to 1998 104.68 per cent value up by a factor of 204.68 = £4093.60/acre or £1,228,080 for the whole farm.
The gain is therefore £2,100,000 less £1,228,080 = £871,920.
Tax is at the marginal income tax rate which will be effectively 40 per cent on the whole but as a business asset owned for over two years there is 75 per cent taper relief.
The tax rate is therefore 10 per cent and tax payable before personal allowances is £87,192.
New Calculation from April 2008:
Example: Farm sold in 2008 for same price.
Base value: £600,000. 1982.
Sale price: £2,100,000.
Gain: £1,500,000.
Tax at 18 per cent before personal allowances £270,000
Tax is increased by a factor of 3.22 times.
Please note that at present these changes are only proposals and it all may well change before April 2008. However, whatever happens, it seems clear that there will be a major overhaul of capital taxation.
