CGT - selling non-business assets after 5 April 2008
November 2007
The position for owners of non-business assets is quite different to business assets.
The present position.
If you sell an asset classified as a non-business asset, that you have owned for more than 10 years, before 6 April 2008, the maximum tax you would pay on the sale as a higher rate tax payer is 24% of the chargeable gain.
The changed position from 6 April 2008
If you dispose of the same asset after 6 April 2008 you will pay tax at the flat rate of 18% of the chargeable gain. On the face of it this is a saving of 25% on your tax bill - but is it?
For certain tax payers who have owned non-business assets for a short time this may well be true. Unfortunately the way in which the gain is calculated is to be radically changed - in some circumstances this may disadvantage taxpayers.
After 5 April 2008, the base cost of the asset will be its value at 31 March 1982 (if purchased prior to this date), or, its actual cost if purchased after 31 March 1982. This base cost will be deducted from the net proceeds of sale. The difference will be the chargeable gain subject to the flat rate of 18%.
An investment worth £750 in 1982 would now need to be worth £2,000 just to maintain its underlying purchasing power. Under the new CGT rules these inflationary gains will be taxed at 18%. Under the present rules the inflationary gain was largely protected by indexation relief to 5 April 1998 and taper relief thereafter.
Accordingly holders of non-business assets, or indeed business assets, may need to take a careful look at the options available to them prior to 5 April 2008, if they have owned the assets for some time.
Non-business assets include:
- Most holdings of stocks and shares held in quoted companies.
- Residential property either let or used as a second home.
Again clients who find themselves in this position should call to see if a proper review of their CGT position would be productive.
