How the new capital-gains tax rules will affect you
Chancellor Alistair Darling simplified the capital gains tax regime in last autumn's Budget. The changes will make quite a difference to the amount of tax you'll pay on any assets sold on or after 6 April this year.
In a welcome departure from Gordon Brown's tendency to make life more complicated, Chancellor Alistair Darling simplified the capital gains tax (CGT) regime in last autumn's Budget. The changes won't affect your tax return this year (accounting for tax arising between 6 April 2007 and 5 April 2008). But they will make quite a difference to the amount of tax you'll pay on any assets sold on, or after, 6 April this year.
The basics have not changed. Gains up to an individual exemption limit, currently £9,200, are still CGT-free. A tax liability is only triggered if you sell a "chargeable asset", such as shares or buy-to-let properties, and losses can be offset against future CGT bills. Certain assets, such as your main home, gilts and assets that fall in value ie, your car remain exempt. And you can still deduct certain acquisition and disposal costs, such as legal fees, when working out the basic gain on disposal (sales proceeds minus cost). So what's changed?
First off, CGT is now only charged at a single rate of 18%, rather than a marginal rate of 10%, 20% or 40% driven by the size of your income. Darling also scrapped the "indexation allowance" (based on changes in the retail price index) and "taper relief" systems. In a nutshell, the longer you owned an asset under the old rules, the less tax you paid. But not any more.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Finally, the special matching rules used to work out the profit on selling shares were simplified. Rather than having to follow a complicated system to work out the cost of any shares sold, now all shares bought before the disposal date are pooled to form a single "section 104" holding. So say you bought 4,000 Tesco shares in March 2005 for £5,000, then 6,000 more in September 2006 for £26,000. You then sell 4,000 in June 2008 for £20,000. The cost deducted from your sales proceeds is 4,000/10,000 x £31,000, or £12,400, to leave a gain of £7,600. Assuming that is your only gain, this year's annual exemption of £9,200 will more than absorb it.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
-
8 of the best properties for sale with smallholdings
Eight of the best properties for sale with smallholdings – from a 17th-century farmhouse in the Deben Valley, Suffolk, to a property set in 36 acres on the slopes of the Preseli Hills, Pembrokeshire
By Natasha Langan Published
-
US election – is the Trump Trade back?
The US election is around the corner. How does Trump influence US markets?
By Alex Rankine Published