The 2010 Emergency Budget introduced a new capital gains tax regime, which took effect for disposals on or after 23 June 2010. We therefore find ourselves having to consider two distinct capital gains tax regimes for 2010/11.
For disposals which took place before 23 June 2010, gains are taxed at 18%.
For disposals on or after 23 June 2010, the rates are as follows:
For gains which do not qualify for entrepreneurs' relief, it is necessary to establish how much, if any, of an individual's basic rate income tax band is remaining after all taxable income has been taken into account, and the amount of gains eligible for entrepreneurs' relief which are taxed before non-entrepreneurial gains, before the rates at which the gains should be taxed can be established.
The rate of capital gains tax on gains eligible for entrepreneurs relief will remain at 10%. Due to the change in the rates, the previous practice of exempting 4/9ths of the gain will no longer apply; entrepreneurial gains will now simply be calculated at a straight 10% rate.
The annual CGT exemption for 2010/11 is £10,100.
Capital losses, including capital losses brought forward and the annual exemption, can be set off against the gains chargeable at the highest rate of tax.
Gains arising in 2010/11, but before 23 June 2010, will continue to be liable at 18% and will not be taken into account in determining the rate at which gains arising on or after 23 June 2010 should be charged.
Where gains have been held over against certain investments, such as Enterprise Investment Scheme (EIS) or Venture Capital Trust (VCT) schemes, the gain will be chargeable at the rates applicable at the time that the deferral ends and the gain crystallises.
For trusts and personal representatives, the capital gains tax rate will be 28% with effect from 23 June 2010 (or 10% in the case of a gain eligible for entrepreneurs’ relief).
Where there is a mixture of gains eligible to entrepreneurs’ relief and non-entrepreneurial gains, the non-entrepreneurial gains are treated as the top slice. This is important for determining the rates at which the respective gains are taxed.
The post-23 June 2010 regimes remains unchanged for 2011/12 with the rates of tax being 10% for entrepreneurial gains and 18% or 28% for non-entrepreneurial gains, depending on whether or not they fall within the basic rate band.
The annual CGT exemption for 2011/12 is £10,600.