A Window of Opportunity

The rules relating to Capital Gains Tax were changed in April 2008, with the effects that indexation allowance and taper relief were abolished and the taxable rate on gains was reduced from an income-dependant maximum of 40% to a flat rate of 18%.

Speculation has been rife as to when the Chancellor will seek to increase the 18% rate in an attempt to raise revenue and, in view of the Government’s recorded deficit of £78 billion for 2008, this may well be sooner rather than later. The Government has admitted that income tax rises in the short to medium term are inevitable, and a new 50p rate for individuals with an income of over £150,000 has already been introduced.

Against this backdrop, it is almost certain that there will be no further reductions in Capital Gains Tax rates. The current position presents a window of opportunity in which to make any sales or disposals that have not yet, for whatever reason, been given effect to. It is likely that many assets, such as stocks, shares and property, will have reduced inbuilt gains, which, coupled with the increase in CGT annual exemption allowances from £9,600 to £10,100, will reduce CGT liability further.

Gifts made by individuals will typically have Inheritance Tax implications should the donor fail to survive a full seven years from the date of the gift. Such gifts are generally treated as “Potentially Exempt Transfers” and would be considered to form part of the donor’s estate at the time of their death for IHT purposes. An important point to note, however, is that the value of the asset would be as taken at the date of the gift, so that any subsequent increase in the value of the asset from that time to the date of death of the donor, would escape IHT.