Vendors warned to take advice following capital gains tax changes - sell at the right time and buy a Ferrari! Monday 15 October 2007 PDF Print PRESS INFORMATION - media enquiries to Sam Dabbs on 07711 672893 People who are planning to sell a business, a second home or other assets which make them liable for capital gains tax should take advice now on when to sell following changes announced in the Pre-Budget Report, says law firm DWF. Chancellor Alistair Darling has announced he intends to introduce a flat rate of capital gains tax at 18 per cent from 5 April 2008. This will replace the current system under which vendors pay the same rate as they pay income tax, generally 22 per cent or 40 per cent. However this will also remove two existing forms of relief which can significantly reduce the amount of tax payable, depending on how long an asset has been held. Emma Gaudern, private client partner at DWF, says: “By using indexation and taper relief people can often reduce the effective tax rate to 24 per cent or less for savings and investments, and just 10 per cent for an interest in a business. What would appear to be giving with the one hand may well be taking away far more with the other.” She cites the example of an entrepreneur with a business worth £3 million which he started five years ago with £100 capital. As he has held the shares for over two years, currently he would qualify for business asset taper relief and pay 10 per cent capital gains tax if he came to sell, resulting in a tax bill of £300,000. If he sold after 6 April 2008 he would pay the 18 per cent rate or £540,000. However people with residential property will benefit from the change. A buy-to-let landlord who has invested a total of £1 million buying property and whose portfolio is now worth £4.5 million due to rising house prices would typically face a tax bill of over £1 million at present, as residential property does not benefit from taper relief. After 6 April that bill would be reduced to £630,000. Emma Gaudern adds: “Anyone contemplating disposing of assets which would produce a capital gain would be wise to take advice now, to determine whether it is better to sell before or after 5 April next year. For people with businesses or significant property holdings, the savings could be sufficient to buy a Ferrari!” Emma also warns that couples should not be complacent about the Chancellor’s decision to double the inheritance tax threshold to £600,000 by allowing the surviving partner to carry over the £300,000 nil rate band on the death of the first. The changes mean that partners can leave their share of the home and assets to each other on the death of the first and, on the second death, these can be passed over to their children without ‘wasting’ the nil rate band of the first. Currently this is only possible through more complex tax planning which requires couples to create a trust in their wills. However Emma says: “This raises questions which can only be answered when we see of the detail of the legislation. For example, what will happen if the surviving spouse goes on to remarry? Will they still be able to carry forward the nil rate band? It also appears the nil rate band carried forward when the first spouse dies will take no account of subsequent increases in value of the assets in the estate. Using a trust can still help combat these difficulties. It also means that the investments within it will not count as part of the surviving partner’s estate if he or she has to go into a nursing home. “It is still essential that couples take proper advice before having wills prepared for them. To assume the new legislation will answer all their inheritance tax prayers would not be wise.” ENDS Notes to editors: DWF LLP is one of the fastest growing regional law firms in the UK and has recently merged with Ricksons. With over 830 people based in Manchester, Leeds, Liverpool and Preston, DWF provides a range of services grouped under the following practice areas: Corporate Banking & Finance Business Recovery Litigation Real Estate People Insurance Private Client DWF has developed extensive sector-specific expertise in a number of areas including: automotive, education, retail & leisure, legal expenses and food and resourcing. Further information on DWF is available via www.dwf.co.uk Media enquiries to: Sam Dabbs Dabbs PR & Marketing T: 01939 210503 or 07711 672893 E: email@example.com This press release was distributed by ResponseSource Press Release Wire on behalf of Dabbs PR & Marketing in the following categories: Personal Finance, Business & Finance, for more information visit http://pressreleasewire.responsesource.com/about.