Capital gains tax new rules 2010
This post will be of interest to anyone likely to pay capital gains tax (CGT) as a result of a sale of an asset in the 2010/11 tax year. The June Budget introduced an overnight change to the CGT regime and HMRC have produced a fairly readable Budget Note 20 and a copy of the Example 1 from that release is reproduced at the foot of this article. The example uses a taxpayer whose income is taxed at the basic rate but in adding capital gains the inclusive income will be in the higher rate band. The process for calculating any gains is as follows:
- Any pre budget gains are still taxed @ 18%
- Post budget gains are taxed under new regime
- You can choose whether to offset the £10100 allowance against pre/post budget gains to minimise your tax bill (normally the post budget gains as avoids 28%)
- For post budget gains, once the allowance has been offset (if applicable), the gain is added to the persons taxable income (ie a “top slicing” arrangement):
- Gains up to the top of the basic rate band are taxed at 18%
- Gains into HR tax band are taxed at 28%
Example 1 from Budget Note 20 produced by HMRC (see link above)
Example 1
In 2010-11 X’s taxable income, after all allowable deductions and the personal allowance, is £27,400. The upper limit of the income tax basic rate band is £37,400. X sells an asset in May 2010 and realises a chargeable gain of £17,000. In November 2010 X sells another asset, realising a chargeable gain £25,100. X has no allowable losses to set against these gains, and the AEA (Annual Exempt Allowance) for 2010-11 is £10,100. Neither of the gains qualifies for entrepreneurs’ relief.
X’s taxable income is £10,000 less than the upper limit of the basic rate band (£37,400 – £27,400). X sets the AEA against the later gain (because part of that gain is liable to tax at the higher CGT rate), leaving £15,000 taxable (£25,100 – £10,100). The first £10,000 of the £15,000 is taxed at 18 per cent and the remaining £5,000 is taxed at 28 per cent. The £17,000 chargeable gain X realised in May 2010 before the change of rates on 23 June 2010 is taxable at the old 18 per cent rate.
This article aims to be informative and your should take professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call. Alastair Wood, AW Accounting – Accountants who “speak your language”
