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News: Farmers bemoan new CGT rule

Mon, 15 Oct 07

The Chancellor’s new Capital Gains Tax system is set to negatively impact farmland...

In the recent pre-budget statement, the Chancellor announced a major change to the Capital Gains Tax system and, from 6 April 2008, an 18% flat rate tax will be due. Disposals made before this date will be under the existing rules. There are no transitional provisions and, effectively, tax will now be payable on past and future inflationary gains.

Taper and indexation reliefs will be abolished. Consequently for those assets which currently qualify for business taper relief the effective rate of tax will increase from 10% to 18% whilst non-business assets will decrease from 24% (or more) to 18%.

The removal of the indexation allowance removes a significant benefit for farmland since March 1982 values plus indexation and taper relief has in most cases (until the recent rise in land values) resulted in a nil liability.

The annual exemption (currently £9,200) will remain together with main residence relief, rollover and holdover reliefs. Rebasing to March 1982 values will be compulsory for assets acquired before that date.

Those potentially affected should consider, with their advisors, if they should advance or delay any disposal until after 6 April 2008 and, with regard to sales, it is the date of exchange of contracts which triggers the liability. For assets qualifying for business taper relief it is likely to be of advantage to make the disposal before next April.

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