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This is my "no 11" capital idea....
CAPITAL GAINS TAX CHANGES
Those of you who regularly tolerate the manic rants from the tax partner will, perhaps, have wondered why I've been so quiet. Apart from the need to get my head together after a traditional Hogmanay it's been a busy month AND I've been hoping that Alistair Dumpling would finally tell us what his capital gains changes are going to be!
The Chancellor announced in October that he's do away with all our complex capital gains rules and just take 18% on all gains. Sounds easy? Well, lots of people complained because at the moment many gains are taxed at 10% or less. So, the Chancellor said "I'm listening and I'll announce some final plans before Christmas" (we all said "thanks Darling"). Just before Christmas he decided to modify this plan slightly and announced "I'm still listening and I'll announce the final plans in the New Year". Now, I stopped wishing people "Happy New Year" and I guess you did too? But still no news...until today.
After criticism from ICAS and the CBI we finally got an outline (but no draft legislation) today.
The plan is-
1. Company gains still taxed as corporation tax (no changes).
2. Basic rule for individual and trust gains - all capital gains are taxed at 18% (after annual exemption).
3. No indexation at all (which was frozen for assets you bought/got before 1998).
4. A new relief that gives you a 10% rate on up to £1M of "business assets" gain in your lifetime. This is called "Entrepreneur's relief"
5. To qualify you have to have the right type of business asset but note that if it's shares you'll have to be an employee and have at least 5% - so AIM investments and staff in PLC companies will not qualify (wait for the small print though!).
6. Effective 6/4/08
Winners ? - people with property / investments that would have paid 40% (or close to it) on their gains - wait until 6/4/08 and see the rate fall.
Losers ? - people who have business assets that don't meet the new narrow tests - e.g. less than a 5% holding, not an employee/director or a gain of more than £1Million in your lifetime.
Being cynical I wonder how long the £1Million will stay "inflation unadjusted". The Chancellor has often quietly forgotten to increase the thresholds for inflation (the small company band for corporation tax hasn't moved in 10 years plus if my memory is correct!).
What should I do?
Probably, take advice if you are sitting on assets that you might sell - I am particularly worried about people with large indexation allowances on assets - especially farmland - as the value of indexation from 1982 to 1998 can double your "base cost" over that time - in short - if you have significant pre-1998 assets speak to us. A spouse transfer might be enough to "lock it down" before 6/4/08.
The other worry I have is that we often don't know enough about a client's affairs to give advice - we rely heavily on clients speaking to us about what they are up to and asking - so don't feel that you shouldn't ask us just because we haven't called you personally!
Most clients will do nothing, however, and many will think 18% a fair result!
COMPANY PROVIDED CARS - MILEAGE FUEL REIMBURSEMENT
The mileage rates for company cars have changed again on 1 Jan (see link below). - this is always a nuisance since if the rates drop as fuel prices change HMRC expect you to keep adjusting your reimbursement. Fortunately relatively few people give company cars out now! -
http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm
CARS - LOW CO2 - SPECIAL TAX RELIEFS FOR BUSINESS
For expenditure the company makes before 31/3/08 on a brand new car with emissions of a maximum 120g/co2 a business will get a 100% capital allowance (tax write down) of the cost. So if you HP (buy on finance, not hire) a new Mini diesel or even a BMW 118d you’d get the full amount of the purchase cost written down against the business profits. When you sell the car you would have an adjustment (slight) via your tax return but it’s still a very useful cash flow saving. I can leave it to you to review the magazines to see what cars have the low CO2 required! HURRY HURRY ON THAT ONE. (Don't forget capital allowances rates fall at the end of this tax year - so capital expenditure, especially on "fixtures" in a building will be best accelerated to February and March 2008 if it is coming up this year, if you want best tax relief!
The "Low CO2 car relief" ENDS on 31/3/08.
So, you rush out for your shiny new 08 plate Mini diesel....then ask me "BUT COMPANY CARS HAVE A “TAXABLE BENEFIT IN KIND so I thought we didn’t do company cars…?"....
...You might ask….
More good news......from 6/4/08 new rules start that say that you get a lower taxable benefit in kind for QUALECs – Qualifying Low Emission Cars – and that instead of the usual 15% (18% for diesel) starting point as a % of list price to pay tax on, you start at 10% (13% diesel).
Let's do the numbers....assuming you were to do this diesel is likely – take a mini….
List price with a few options - 16,000
Taxable benefit at 13% - 2,080
40% tax on benefit - £832
There’s a little employer’s national insurance too but overall if you buy before March 31st (and remember it has to be new and first keeper your company not a pre-reg/demo car!) you can get the 100% write off in the company and a £70 per month tax cost for the employee for having it. Not bad at all.
AND FINALLY.....
I make no apology for my criticism of Alistair Darling - it is no more than the press, the CBI and ICAS have suggested- in terms of capital gains tax he has taken a fairly "clear" area of tax law and torn it up to raise more tax. He has then left taxpayers with gains on their business assets with an entirely uncertain situation for 3 months, simply because he hadn't thought through his October announcement properly. His final announcement that we will have new relief systems confirms his change does nothing much to simplify the tax law (which is where he started) but, instead, replaces one system with another with rather arbitrary sets of losers and winners. Good work?
IT IS THE 24TH OF JANUARY AND NO BLOG IS COMPLETE WITHOUT REMINDING YOU THE PERSONAL TAX DEADLINE IS 31/1/08 - FOR FILING OF RETURNS AND PAYING TAX!....
Best wishes for an excellent 2008!
Donald
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