Capital Gains Tax (CGT)

The annual capital gains tax exemption is £10,600 for individuals and £5,300 for most trusts for 2011/12. Gains up to this amount are not liable to tax.  The allowance cannot be carried forward.

For individuals whose total taxable income and gains are less than the upper limit of the income tax basic rate, the rate of tax is 18%.  For gains, including parts of gains, above that limit, the rate is 28%.  The rate for trustees is also 28%.

Individuals and trustees should review their capital gains position before 5 April with their investment advisers.  For some, good tax advice will also be essential if you are for example:

• leaving the UK
• returning to live in the UK
• a temporary non-resident
• a US citizen or Green card holder
• dual resident
• a remittance basis user
• a settlor or beneficiary of an offshore trust

Entrepreneurs' relief

Disposals of business assets qualifying for entrepreneurs' relief may also give rise to complications.

The effective rate of CGT for gains qualifying for entrepreneurs' relief remains at 10% and from 6 April 2011 the lifetime limit was increased to £10 million. However, due to a technical change in 2010 in the way the relief is given, the relief is no longer available in some circumstances.

On a company re-organisation or sale involving the acquisition of loan notes that are Qualifying Corporate Bonds, it is now possible to disapply the normal deferral rules, by election, so that a claim for entrepreneurs' relief can be made. This option is not available for loan notes that are not Qualifying Corporate Bonds, so that entrepreneurs' relief could be lost if the new loan notes do not qualify for the relief.

Individuals who are taxed on the gains of an offshore trust under the beneficiary provisions can no longer obtain the benefit of entrepreneurs' relief for gains attributed to them. Relief is still available for qualifying disposals where the gain is taxed on the settlor.

Enterprise Investment Scheme (EIS)

Gains made in the current or earlier years can be sheltered by reinvestment in qualifying EIS shares. Purchases of EIS shares can be used to shelter gains made up to three years earlier. Gains deferred under the EIS are taxable at the CGT rates applicable at the time the deferral ends.  It should be remembered that capital gains made between 6 April 2008 and 22 June 2010 were taxed at only 18%. Thus it may not be beneficial to defer these gains since the current rate of tax is higher.

It is no longer possible for individuals with gains qualifying for entrepreneurs' relief to defer the tax liability by investing in an EIS company and still obtain the benefit of entrepreneurs' relief on the original gain when the EIS shares are sold. Instead, an individual must choose between paying tax at 10% on the original gain or deferring the gain to a later year but paying tax at 18% or 28%.

Seed Enterprise Investment Scheme

If you were considering investing in Enterprise Investment Scheme (EIS) shares or Venture Capital Trusts (VCTs) before the year end, you should be aware that a new relief will apply to investments made on or after 6 April 2012 in relation to small, early stage companies carrying on, or preparing to carry on a new business in a qualifying trade.

Gains realised on the disposal of assets in 2012/13 that are invested through SEIS in teh same year will be exempt from CGT.

Foreign currency

It is proposed that from 6 April 2012 foreign currency held by individuals will be exempt from capital gains tax.  Consider deferring currency gains until after 5 April 2012 but crystallise losses before that date.

Assets of negligible value

Where an asset became of negligible value in the year ended 5 April 2010, a claim for capital gains tax relief must be made by 5 April 2012. Losses on certain shares in unquoted trading companies can be claimed against income tax.

Main residence relief

If you own more than one property, and both qualify as a main residence at some point during your period of ownership, an election can be made within two years of a change in a combination of residences to minimise your exposure to CGT. Once a valid election is in place it can be varied at any time. In the absence of a valid election, the position is determined on the basis of fact.

Please contact Zoe Hidden on 020 7516 2298 or email zhidden@littlejohnllp.com for further information and assistance.