Whilst the government were extolling the advantages of the new inheritance tax proposals by ‘doubling’ the nil rate band for couples it never actually explained that if your will was already set up in a tax efficient manner that these new proposals may not make any difference to you. Indeed the new rules will not benefit couples who are not married or civil partners. Pauline Jackson, Tax Partner at Saint & Co Chartered Accountants said: “Undoubtedly the new rules will benefit many people where the bulk of their joint estate is tied up in the home and will result in more estates falling out of inheritance tax where planning had not been carried out.Individuals who have already incorporated nil rate band trusts into their wills may now wish to reconsider whether this is still appropriate or whether the will should be amended.” However, what is likely to have a far bigger impact on the local business community are the proposed changes to capital gains tax which will come into effect from 6 April 2008 as below:
- The will be a single rate for capital gains tax of 18%
- Taper relief will no longer be available for business or non business assets
- Indexation allowance will no longer be available on assets held at April 1982 or acquired since then until March 1998 (Companies will continue to have indexation allowance available)
- The annual exemption will remain at £9,200
The impact on proprietors selling their business or shares in their trading limited company could result in an increase in the capital gains tax payable by up to 80% in certain circumstances. Pauline added: “It is now a fine balancing line for business owners to determine when is the best time to sell their business from a tax perspective. It will be essential to calculate the potential liability both pre and post 5 April 2008 to enable the impact of the changes to be quantified. Certain businesses, which have been trading for at least 2 complete years and are eligible to the maximum 75% taper relief, may find it beneficial to sell before 6 April 2008. Whereas a newer business may find that less tax is paid if the sale occurs on or after 6 April 2008. It is essential that anybody considering the sale of their business discuss the new rules with their professional tax advisor.” Where assets are sold which are not eligible to the higher rates of business asset taper, ie they are purely investment assets, it could be that the new rules will be advantageous as tax will now be payable at 18% whereas it could have ranged between 12% and 40% dependent upon the number of year the asset was owned. Again it is imperative that figures are calculated for each individual’s circumstances to ascertain the most tax efficient disposal date. For further information please contact Pauline Jackson, Tax Partner on 01228 534371 or email pauline@saint.co.uk .
Date:31 October 2007
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