Pre-Budget Report 2007 – Changes to Capital Gains Tax
The Chancellor in his 2007 pre-budget report announced a simplification of capital gains tax taking effect from 6 April 2008 which will have a widespread impact on shareholders in unquoted trading companies and employee shareholders as well as holders of other business assets, e.g. certain commercial properties. The changes affect individuals, trustees and personal representatives and do not affect chargeable gains of companies subject to corporation tax.
What are the changes?
The following changes take effect in respect of disposals made on or after 6 April 2008:-
- a flat rate of 18% capital gains tax will be charged on all capital gains
- taper relief and indexation allowance will be withdrawn completely
- all assets held on 31 March 1982 will be deemed to have been acquired at market value on that date – there will be no "kink test" and halving relief is withdrawn; and
- share identification rules will be simplified
What will the changes mean for companies and their shareholders?
Holders of shares in quoted or non-trading companies or those looking to turn around equity investments quickly will benefit from the flat rate. However, the withdrawal of taper relief will have a negative impact on many other shareholders. Implications of the changes include:-
- shareholders in unquoted trading companies who have accrued maximum business asset taper relief will face almost double the tax liability on disposals once taper relief is abolished. Such shareholders contemplating a disposal of their shares will be keen to sell before 6 April 2008.
- unquoted trading companies will no longer come under pressure to ensure they remain "qualifying trading companies" for the purposes of shareholder taper relief.
- vendor shareholders holding non-QCB loan notes should assess whether they ought to redeem the loan notes in advance of 6 April 2008.
- employee shareholders, who may have been treated as holding business assets for taper relief purposes even in quoted or non-trading companies, will also lose the benefit of taper relief. Companies who have implemented employee share acquisition or option plans should consider communicating the changes to their employees.
- options granted under the Enterprise Management Incentive scheme ("EMI") will be less tax efficient following 6 April 2008 given that no taper relief will accrue in relation to the option. Again, companies who have implemented options under this scheme should consider communicating the changes to optionholders.
Draft legislation is expected later in the year therefore it remains to be seen whether there will be opportunities available for shareholders to "lock in" to their current fully tapered rate.
If you wish to discuss the changes and their implications please contact Karen Davidson or Rebecca Black.
|
 |
Rebecca Black Senior Assistant Corporate Tax Team Tel. +44 (0)141 567 9318 rebecca.black@mcgrigors.com |
||
|
||||
© 2008 McGrigors LLP . McGrigors LLP is a multi-national legal practice regulated by both the Law Society of Scotland and the Solicitor's Regulations Authority in England and Wales. McGrigors LLP is a limited liability partnership registered in Scotland with registered number SO300918 and having its registered office at Princes Exchange, 1 Earl Grey Street, Edinburgh EH3 9AQ.
This publication is provided for general information purposes only and does not constitute legal or other professional advice. If you require advice on a specific legal problem please contact the relevant partner listed on our website or alternatively you can send an email to enquiries@mcgrigors.com. McGrigors LLP accepts no responsibility for any loss which may arise from reliance on information contained in this publication.