Capital gains tax (CGT) rates
The current rates of CGT are 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains; mainly chargeable gains on residential properties with the exception of any element that qualifies for private residence relief.
There are two specific types of disposal which potentially qualify for a 10% rate, both of which have a lifetime limit of £10 million for each individual:
- Entrepreneurs’ Relief (ER). This is targeted at working directors and employees of companies who own at least 5% of the ordinary share capital in the company and the owners of unincorporated businesses
- Investors’ Relief. The main beneficiaries of this relief are external investors in unquoted trading companies who have had newly-subscribed shares.
ER – relief after dilution of holdings
The government will consult on how access to ER might be given to those whose holding in their company is reduced below the normal 5% qualifying level (meaning 5% of both ordinary share capital and voting power) as a result of raising funds for commercial purposes by means of an issue of new shares. The proposal would allow shareholders to elect to crystallise a gain on their shares before the dilution occurs. This would be achieved by treating the shareholding as having been sold and immediately re-purchased at the prevailing market value. The election will have to be made in their tax return for the year in which the dilution takes place. The shareholder may also elect to defer the accrued gain until their shares are actually disposed of.
Inheritance tax (IHT) nil rate band
The nil rate band has remained at £325,000 since April 2009 and is set to remain frozen at this amount until April 2021.
IHT residence nil rate band
From 6 April 2017, a new nil rate band, called the ‘residence nil rate band’ (RNRB), has been introduced, meaning that the family home can be passed more easily to direct descendants on death.
The RNRB is being phased in. For deaths in 2017/18 it is £100,000, rising to £125,000 in 2018/19, £150,000 in 2019/20 and £175,000 in 2020/21. Thereafter it will rise in line with the Consumer Price Index.
There are a number of conditions that must be met in order to obtain the RNRB, which may involve redrafting an existing will.
The residence nil rate band may also be available when a person downsizes or ceases to own a home on or after 8 July 2015 where assets of an equivalent value, up to the value of the residence nil rate band, are passed on death to direct descendants.
Office of Tax Simplification (OTS) review of inheritance tax
The Chancellor has requested the OTS to carry out a review of the inheritance tax regime to ensure that the system is fit for purpose. The review should include a focus on administrative issues such as the submission process, as well as practical issues concerning routine estate planning.