TAX – Questions & Answers.

Q: Can you remind me of the changes that have been announced concerning capital gains tax (CGT)?

A: The chancellor announced in June that he planned to reduce the rate of CGT (assuming a 40% taxpayer) on business assets held for two years to 10% from 6 April 2002. Currently, the 10% rate is only available if assets have been held for four years.

Q: So if I owned business assets on 5 April 1998, will I be any better off if I wait until 6 April 2002?

A: The new changes make no difference. If you sell your business assets before 6 April 2002, your CGT rate will be 20% and if you wait until 6 April 2002 your CGT rate will be 10%.

Q: Who exactly will these changes benefit?

A: They will benefit those who set up businesses after 5 April 1998 and before 6 April 2000 who want to realise their investments. So if you set up a business on 5 April 2000, then, under the current rules, a disposal on, say, 6 April 2002 would have been subject to CGT at 30%. The CGT rate will now be only 10%.

Q: So does it make sense, therefore, to hold such assets until 6 April 2002?

A: Definitely. Before these changes, holding on until 6 April 2002 rather than selling now would reduce your CGT rate from 35% to 30%. Following these changes, your CGT rate will reduce from 35% to 10% – a powerful incentive to hold on until this date.

Q: Is the Pre-Budget report likely to change anything?

A: No, it’s unlikely. In fact there’s a chance that the chancellor may even announce reductions in the CGT rates for non-business assets, so the best bet is to sit tight.

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