Capital gains tax (CGT)

Annual exempt amount – individuals £11,100 and most trustees £5,550.

Budget 2016 announces that, from 6 April 2016, the higher rate of CGT will be reduced from 28% to 20%, and the basic rate from 18% to 10%.

There will be an eight percentage point surcharge on these new rates for carried interest and for gains on residential property. Private Residence Relief will continue to ensure that an individual’s main home is not subject to CGT.

Employee Shareholder Status (ESS)

Budget 2016 introduces an individual lifetime limit of £100,000 on gains eligible for CGT exemption through ESS. This limit will apply to arrangements entered into on or after 17 March 2016, and will not apply to arrangements already in place.

Entrepreneurs’ relief (ER)

Qualifying gains will be taxed at 10%. Claims may be made on more than one occasion up to a ‘lifetime’ total of £10m.

ER will be extended to external long term individual investors in unlisted companies, providing a 10% CGT rate for gains accruing on the disposal of newly issued shares in unlisted companies purchased on or after 17 March 2016. This new investors’ relief is subject to the shares being held for a minimum of three years from 6 April 2016, and a separate lifetime limit of £10m of gains.

Goodwill on incorporation

The Government will allow ER to be claimed, subject to certain conditions, on gains on the goodwill of a business when that business is transferred to a company controlled by five or fewer persons or by its directors. These changes will take effect for disposals made on or after 3 December 2014.

Associated disposals

There are to be changes to the availability of ER on associated disposals which will be backdated with effect from 18 March 2015. The changes allow ER to be claimed on an ‘associated disposal’ of a privately-held asset when the accompanying disposal of business assets is to a family member. Relief can also be claimed in some cases where the disposal of business assets does not meet the present 5% minimum size condition.

Joint ventures and partnerships

Changes to the definition of a ‘trading company’ and a ‘trading group’ for ER purposes are to be introduced and will apply to disposals on or after 18 March 2015. Where the new definitions apply, a fraction of the activities of a joint venture company will be treated as carried on by a company which holds shares in the joint venture company. Similarly, where the new definitions apply, trading activities of a company in its capacity as a partner in a firm will be taken into account in deciding whether the company is a trading company for ER purposes.

Property: Finance costs

Legislation will be introduced in Finance Bill 2016 to clarify that the basic rate tax reduction is available to beneficiaries of deceased persons’ estates. It will also ensure that the basic rate reduction applies and is calculated as intended.