CGT - selling non-business assets after 5 April 2008

In this year's Pre-Budget Report, Alistair Darling the Chancellor proposed significant changes to the capital gains tax regime in the UK. The Chancellor revealed that from 6 April 2008, the Government intends to introduce a flat-rate of 18% capital gains tax, and at the same time abolish indexation relief and taper relief for business assets.

Our article on Selling business assets after 5 April 2008 reveals the effects these proposals will have for owners of business assets but the position for owners of non-business assets is quite different.

The present position when selling non-business assets

If you sell an asset classified as a non-business asset, that you have owned for more than 10 years, before 6 April 2008, the maximum tax you would pay on the sale as a higher rate tax payer is 24% of the chargeable gain.

The position of selling non-business assets from 6 April 2008

If you dispose of the same asset after 6 April 2008 you will pay tax at the flat rate of 18% of the chargeable gain. On the face of it this is a saving of 25% on your tax bill - but is it?

For certain tax payers who have owned non-business assets for a short time this may well be true. Unfortunately the way in which the gain is calculated is to be radically changed - in some circumstances this may disadvantage taxpayers.

After 5 April 2008, the base cost of the asset will be its value at 31 March 1982 (if purchased prior to this date), or, its actual cost if purchased after 31 March 1982. This base cost will be deducted from the net proceeds of sale. The difference will be the chargeable gain subject to the flat rate of 18%.

Under the proposed new CGT rules investors will be taxed on inflationary gains

An investment worth £750 in 1982 would now need to be worth £2,000 just to maintain its underlying purchasing power. Under the new CGT rules these inflationary gains will be taxed at 18%. Under the present rules the inflationary gain was largely protected by indexation relief to 5 April 1998 and taper relief thereafter.

Accordingly holders of non-business assets, or indeed business assets, may need to take a careful look at the options available to them prior to 5 April 2008, if they have owned the assets for some time.

Non-business assets include:

• Most holdings of stocks and shares held in quoted companies.
• Residential property either let or used as a second home.