Capital gains tax (CGT)

Capital gains tax (CGT) rates and annual exemption

There will be a new rate of CGT of 28% from 23 June 2010. For individuals, the rate of CGT remains at 18% where their net taxable gains and taxable income are less than the income tax basic rate limit currently £37,400. The 28% rate applies to gains or parts of gains that exceed that limit. Trustees and the personal representatives of deceased persons are subject to the 28% rate rather than the 18% rate on all taxable gains.

Gains on disposals before 23 June 2010 continue to be liable to CGT at 18% and will not be taken into account in calculating the rate or rates that apply to gains realised from that date.

The annual exempt amount (AEA) will remain at £10,100 and will continue to be indexed in future years.

In calculating the CGT that is payable, taxpayers will be able to deduct losses and the AEA in the way that will minimise the tax due.

For example – George has taxable income from his employment and investments of £24,000 (after his personal allowance) in the tax year 2010/11. He made two capital gains during the year: £15,000 in May 2010 and £34,000 in July 2010.

He chooses to set his AEA of £10,100 against his July gain, because that would be more advantageous for him. So the tax on his May gain would be £15,000 x 18% = £2,700.

His July gain of £34,000 is reduced to £23,900 by the AEA. This gain is added to his taxable income for the year of £24,000, making a total of £47,900. Up to the basic rate limit of £37,400, the gain of £13,400 is taxable at 18% – £2,412. Above £37,400, £10,500 is taxable at 28% – £2,940. So the total CGT is £5,352. George saved CGT by setting his AEA against the gain taxable at 28% rather than 18%.

Saver: Share your gains. If you are a higher or additional rate taxpayer, you will pay 28% on all capital gains above your annual exemption. If your spouse is a basic rate taxpayer, they will only pay 18% on gains above their annual exemption until their basic rate tax band is exhausted.

CGT deferral reliefs

Capital gains may be deferred in certain cases – for example, they may be held over against a qualifying corporate bond (QCB) received as consideration on a company share sale or deferred by investment in an enterprise investment scheme (EIS). In such cases, the gains become taxable on a subsequent chargeable event – for example, when the QCB is encashed or the EIS shares are sold.  

It is confirmed that where pre-23 June 2010 gains are deferred and become taxable after that date, they will be subject to the new CGT rates.

Entrepreneurs’ relief

The lifetime limit for entrepreneurs’ relief has been increased from £2 million to £5 million for disposals after 22 June 2010. Entrepreneurs’ relief applies to the disposal of qualifying business assets by individuals and certain trustees. Gains that qualify for the relief are subject to a tax rate of 10%.