Pre Budget Report 2007 - 09 October 2007 - "Meeting the aspirations of the British people"
Delivered by Chancellor - Alistair Darling
Overview
Economy:
Finance
Our view
This was a 'nothing given away' budget.
Inheritance Tax
The inheritance tax threshold of £600,000 for couples has always been available provided you take adequate financial advice and gift assets on first death.
Capital Gains Tax
The capital gains tax change actually brings the UK into line with a number of our European partners. What we expect it to mean though is that we lose taper relief and we will lose indexation allowance.
Charging a flat rate of 18% on all gains is likely to be much more profitable than inflation adjusted gains with huge taper relief discounts and many holding assets for longer until the maximum taper relief starts at 10 years.
Let us demonstrate:
Current Rules: After 10 years of ownership of an asset and then selling at a profit, Business Taper Relief means 25% of the gain is taxable and for non businesses and private individuals private Taper Relief means 60% of gain is taxable. Tax is paid at your highest rate.
E.g. Gain £100,000 on the sale of a property, owned for 10 years.
Current Rules:
If Business: 25% of gain is taxable. 25% X 100,000 = £25,000 is taxable. E.g. at 20% = £5,000 tax
If Personal: 60% of gain is taxable. 50% X £100,000 = £60,000 is taxable. E.g. at 20% = £12,000 or at 40% = £24,000 is taxable.
New Rules: 18% flat rate on gain. 18% X £100,000. = £18,000. Higher Rate tax payers will be better off, business and basic rate tax payers will not.
We will need to see the full explanation of the rules before we are convinced but, in simple terms, we believe that the majority of people making gains are basic rate payers, hence the change!