Chancellor Alistair Darling’s proposed changes to the capital gains tax (CGT) regime, announced in last November’s Pre-Budget Report, may mean that you should consider rebalancing your investment portfolio.
Mr Darling announced that he intends to introduce a flat CGT rate of 18 per cent for everyone. This would replace the current system, which depends on your overall tax status and the length of time you have held an asset.
The potential losers include people who invest in business assets, including shares listed on the Alternative Investment Market (Aim) and unquoted shares. These would no longer benefit from accelerated taper relief, which reduces higher-rate CGT from 40 per cent to 10 per cent after a two-year holding period - or from 20 to 5 per cent for basic-rate taxpayers.
It may be wise to sell such holdings before 6 April 2008 to take advantage of the current lower rate, if you have an unrealised gain and have held the investment for long enough to benefit from accelerated taper relief. Employees who invest in their companies’ shares would also be affected, although it should still be possible to shelter shares from save-as-you-earn schemes inside individual savings accounts (Isas).
The other losers are basic-rate taxpayers who hold conventional investments. This group, including many pensioners, would also miss out on standard taper relief, which brings basic-rate CGT down to 12 per cent after a 10-year holding period.
The winners are higher-rate taxpayers, who should no longer need to hold normal investments for 10 years to enjoy full taper (which still only brings their CGT rate down to 24 per cent). Instead, from April 2008, you should be able to take profits whenever you think an asset’s price is at its peak, rather than having to hold on for taper relief.
