Capital Gains Tax
Rate of tax and annual exemption
The rate of CGT remains 18% for those whose total taxable income and gains for the year are below £32,010, and 28% for gains which are above that figure. The annual exempt amount for CGT increases by £300 to £10,900. This is the normal increase in line with the consumer prices index.
Trustees continue to be liable to CGT at 28% after deducting half the normal annual exemption (£5,450). The annual exemption is shared between trusts set up by the same settlor since June 1978, subject to a minimum of £1,090.
Entrepreneurs’ Relief (ER)
The lower 10% rate of CGT is to be extended to many shares acquired under the Enterprise Management Incentive schemes which small businesses may use to reward key employees. Entrepreneurs’ Relief normally requires the shareholder to own the shares for at least 12 months; the length of time for which an EMI option is held may now be included in this qualifying period. It will also not be necessary for an EMI shareholder to own 5% of the company.
Inheritance Tax Rates
Rates of tax remain unchanged at 40% (death transfers) and 20% (lifetime chargeable transfers). The nil rate band of £325,000, which was previously frozen until 2015, will now not increase until April 2018 at the earliest. This will gradually increase the amount collected and the number of estates liable to IHT, estimated at 17,000 in 2010/11 and 22,000 in 2017/18. The measure is intended to offset the cost to the state of capping the amount of domestic care that elderly people will have to pay for themselves.
Foreign domiciled people
Transfers between husbands and wives and registered civil partners are generally exempt from IHT without limit. However, there is a lifetime limit where the recipient is domiciled outside the UK and the transferor is UK-domiciled. Since the 1980s, this limit has been £55,000; as announced last year, it will be increased to £325,000 for transfers taking place on or after 6 April 2013. In future, it will be aligned with the nil rate band, which means it will not change again until 2018.
It will also be possible for non-UK domiciled people to choose to be treated as UK-domiciled for IHT purposes. This will enable them to enjoy the unlimited exemption at the time, but will restrict the tax advantages they might otherwise enjoy later.
A new anti-avoidance rule is introduced to counter an avoidance scheme which involves the deduction of liabilities from a chargeable estate. It has been possible to increase the benefit of a deduction by using borrowings to buy assets that are excluded from the charge to IHT, or which are subject to a 100% relief; and HMRC believe that liabilities are sometimes deducted without ever being paid to the creditor. New rules will prevent the deduction of such liabilities after Royal Assent to the Finance Act 2013.