17 March 2004 Budget Report

Budget Report Logo

Capital Taxes

Capital gains tax (CGT)

Exemptions and rates of tax

The annual exempt amount (AEA) has been increased for 2004/05 to £8,200 (2003/04 £7,900) for individuals and to £4,100 (2003/04 £3,950) for most trustees. The AEA is divided where there are several trusts created by the same settlor.

Taxable gains for individuals are taxed at savings rates as if they were the top slice of income, using any remaining balance of 10% and 20% rate bands. The excess is taxed at 40%.

Capital gains of trusts are subject to tax at the special trust tax rate which has been increased for 2004/05 to 40% (2003/04 34%).

Deferral relief

CGT deferral relief will not be available for gains reinvested in venture capital trust (VCT) shares issued on or after 6 April 2004. The relief remains available in respect of gains arising in the tax year 2004/05 where the VCT shares in question were issued before 6 April 2004 but within the period of twelve months ending on the date the gain arises.

Deferment of CGT continues to be available for gains reinvested in Enterprise Investment Scheme (EIS) shares within one year before and three years after the disposal, without any upper limit.

The main change announced by the Chancellor is an increase in the IHT threshold, indexed in line with RPI, to £263,000 (2003/04 £255,000). The rate of IHT remains at 40%.

Simplifying IHT administration

Measures announced by the Chancellor will bring a further 30,000 estates a year within the simpler reporting regime for IHT so that other than in the largest estates (and a small number of other exceptions), an IHT account will be required only where there is tax to pay. The new processes will ensure that basic information about the vast majority of estates is provided to Government only once and passed as necessary between the Probate Service and Inland Revenue.

Exactly what information should be provided will be discussed with interested parties before the regulations are changed later this year. At the same time the IHT penalty rules will be brought more in line with those for income tax and CGT.

Pre-owned assets

Until now, it has been possible to use artificial structures to avoid inheritance tax by disposing of valuable assets while retaining the ability to use them. From 6 April 2005 an income tax charge will be applied to the benefit people get by having free or low-cost enjoyment of assets they formerly owned (or provided the funds to purchase). This will broadly follow the model of the benefit-in-kind charge on employees.

The charge will not apply to assets transferred under such avoidance schemes before 18 March 1986 and there will be no charge where the cash value of benefits would be below £2,500 per year.

Property derivatives

Consultation is to take place on proposed regulations to adapt the derivative contracts legislation to provide a comprehensive regime to deal with some derivatives that are currently excluded because they derive their value from property. The gain or loss arising would be treated as a chargeable gain for tax purposes, unless the company is party to it for the purposes of its trade.



Business: 
Personal:  Introduction to the Tax System | Planning Aspects | Home Aspects
Pensions | Aspects of Investments and Investing | VCT & EIS
Tax:  Budget Report | Tax Guide | Financial Planning Guide
Tax Calendar | IR35 | PAYE & NI | VAT | Year End Tax Planning





http://www.icaew.co.uk/


Register | Login | Logout | My Profile | Terms and Conditions
Copyright © Payne Sherlock. All rights reserved.