Capital Gains Tax Regime From 23 June 2010

• Entrepreneurs’ relief increased so that there is a new lifetime limit of £5 million taxed at 10%.
• Otherwise, you will now pay CGT at 18% if the gains added to your taxable income do not exceed the basic rate band and 28% on any excess.
• Any gains made from 6 April 2010 to 22 June 2010 do not count as using up the available basic rate band.
• Losses can be set-off against gains in the most beneficial way – as can the annual exemption, which for this tax year stays at £10,100.
• As to whether or not the 18%/28% rates will continue, it is simply stated that the 2011/12 rates will be decided in the Budget 2011. That sounds ominous, and suggests that the changes to the CGT regime are not necessarily permanent.

The following illustration of CGT rates has been taken from the HMRC press release:

In 2010/11 X’s taxable income, after all allowable deductions and the personal allowance is £27,400. The upper limit of the income tax basic rate band is £37,400. X sells an asset in May 2010 and realises a chargeable gain of £17,000. In November 2010 X sells another asset, realising a chargeable gain £25,100. X has no allowable losses to set against these gains. Neither of the gains qualifies for entrepreneurs’ relief.

X’s taxable income is £10,000 less than the upper limit of the basic rate band (£37,400 - £27,400). X sets the AEA against the later gain (because part of that gain is liable to tax at the higher CGT rate), leaving £15,000 taxable (£25,100 – £10,100). The first £10,000 of the £15,000 is taxed at 18% and the remaining £5,000 is taxed at 28%. The £17,000 chargeable gain X realised in May 2010 is taxable at the old 18% rate.