Capital Taxes
Capital gains tax (CGT)
The annual exemption has been increased for 2002/03 to £7,700 for individuals and to £3,850 for
most trusts.
Rates of tax
For individuals, gains in excess of the annual exempt amount are added as a top slice to savings
income and charged to tax at the appropriate rate. The rates of tax remain unchanged.
Business assets
The maximum rate of business assets taper relief will be available on business assets sold after 5
April 2002 providing they have been held for over two years at date of sale. Taper relief will be 75%
of the gain, reducing the maximum CGT rate to 10%. If the asset has been owned for at least one
year, taper relief of 50% is due, reducing the maximum CGT rate to 20%.
There have been no changes announced to taper relief on non-business assets. The maximum
relief remains at 40%, reducing the maximum CGT rate to 24%, and applies providing the asset has
been held for a period of ten years after 5 April 1998.
Simplifications:
A number of measures have been announced to simplify certain aspects of CGT including:-
Incorporation relief (IR)
On incorporation of businesses after 5 April 2002, individuals and trustees will be able to opt that IR
does not apply, which may be beneficial for claims to taper relief.
Same day acquisitions
In respect of disposals after 5 April 2002, individuals who have acquired shares under different
share employee schemes on one day can elect that shares with a smaller gain are disposed of first.
Deemed securities
Debentures that, while not securities, are treated as securities under certain CGT rules will also be
treated as securities and qualify for the more generous business assets taper relief. This applies to
disposals after 5 April 2001 and for holding periods after 5 April 1998.
Corporate reconstructions
With effect from 17 April 2002 the CGT deferral on company reconstructions where shares or
debentures are issued in one company in exchange for those in another company will be extended
to apply to companies without share capital.
Trading losses and taper relief
With effect from 2002/03 it will be possible to claim relief for trading losses incurred in an
unincorporated business against capital gains before taper relief is applied.
Anti-avoidance provisions
Where there was a relevant change in the activity of a close company, the taper relief clock was
reset to zero. With effect from 17 April 2002, this legislation is repealed.
Any period of time after 5 April 1998 when a close company is not 'active' will not count towards the
qualifying period for taper relief.
Settlor trust gains
In certain situations, a settlor is treated as having an interest in the trust and gains are taxed on him.
In respect of gains arising after 5 April 2000, personal losses can be offset before taper relief is
calculated.
Variation of Wills
In respect of variations on or after 1 August 2002 there will be no need to send in a formal election
for exemption from CGT and IHT provided the Deed specifies the exemptions will apply.
Inheritance tax (IHT)
The only change the Chancellor announced is an increase in the nil rate band to £250,000.
Duties
Alcoholic drinks and tobacco
The duty on beer, wine and spirits has been frozen this year. As from midnight 27 April 2002 the duty
on cider and perry is reduced by 2%, whilst that on certain spirit based drinks (coolers) is increased
to that of spirits.
The tax on a packet of cigarettes will increase by 6p from 6pm 17 April 2002. Other tobacco
products will also suffer increases in line with inflation (approximately 1.9%).
Small breweries (with an annual production of 30,000 hectolitres or less) and those dealing with
such beer in duty suspense, will pay reduced levels of beer duty from 1 June 2002. A reduced rate
of 50% of the standard rate will be due on annual productions up to 5,000 hectolitres, rising on a
sliding scale to the full rate for 30,000 hectolitres and above.
Vehicle excise duty (VED) and road fuel duty
VED is frozen on all vehicles. For new licences after May 2002 and for cars registered after March
2001 reductions in the VED of £30 will be due for low carbon dioxide emitting cars. Reduced rates
will also apply to new vans from March 2003 which meet certain emission levels.
Most road fuel duties are frozen whilst from 2003 incentives will be introduced for sulphur free fuels.
Stamp duty
Transfers of goodwill will be exempted for all documents executed on or after 23 April 2002. Anti
avoidance measures are to be introduced in respect of "resting on contracts", certain documents
executed outside the UK and in certain cases, transfers of properties or of shares.
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