News: March 2011

Capital Taxes

Capital Gains Tax Rates and Thresholds

The rates and thresholds for capital gains tax are as follows for 2011/12:

• Annual exemption – £10,600
• Annual exemption for most trustees – £5,300
• Rate for gains in basic rate band – 18%
• Rate for gains above basic rate band – 28%
• Rate for gains subject to entrepreneurs’ relief – 10%
• Lifetime limit for entrepreneurs’ relief – £10,000,000

Entrepreneurs’ Relief

This relief applies to gains made on the disposal of businesses, parts of a business, shares in trading companies and certain business assets disposed of after a business ceases or in association with a business disposal. The taxpayer and the business must both meet a number of qualifying conditions for the relief to apply.

Each taxpayer has a maximum amount of gains that they can include in a claim for entrepreneurs’ relief, called the lifetime limit. This lifetime limit was initially set at £1 million from 6 April 2008. It was increased to £2 million from 6 April 2010, increased again to £5 million from 23 June 2010. The lifetime limit will be doubled to £10 million for gains made after 5 April 2011.

Inheritance Tax

The nil rate band for inheritance tax (IHT) will remain frozen until 2014/15 at £325,000. This is the amount of a person’s estate that is free of inheritance tax.

The rate payable on death for 2011/12 remains at 40% with the rate payable on lifetime gifts to certain trusts remaining at 20%.

From April 2012 those that give at least 10% of their estate on death to charity will pay a reduced rate of IHT of 36%. Gifts made to charities are exempt from IHT.