CGT: Adjusting to an 18% environment

Few tax legislation changes have created such media and tax payer interest as the recent upheaval of capital gains tax (CGT). Since 6 April 2008 one simplified flat rate of 18% CGT has replaced tax rates ranging from 10% to 46%. Now that the dust has settled, tax payers need to consider what the new 18% environment means for their business and their employees as well as for personal investments.

This short video featuring PwC Partner, Gary Telford, provides just a few of the many new considerations and opportunities arising from the introduction of the 18% rate.

What happens if this issue remains unaddressed?

Given the significant change in legislation, affected individuals and organisations should review their circumstances. Three key opportunities are detailed in the video; applying the most advantageous business structure; investing tax effectively and establishing an employee share scheme that takes advantage of the 18% rate.

Limited liability partnerships

Post 6 April 2008, a limited liability partnership (LLP) has become more attractive for many business owners. An LLP provides comparable equity partner protection from litigious action as a limited liability company, the key advantage for many will be the treatment of operating profit and the amount of tax payable on the sale of assets or the business. The reason is that as a partnership the LLP is transparent for tax and therefore avoids the corporate double layer of taxation.

Investing tax effectively

The 18% CGT rate has created an environment where tax on capital appreciation for higher income earners is typically lower than personal income tax applied to gains on cash investments e.g. interest and dividends, whereas assets disposed with capital gain will be taxed at the lower 18%. Investors should now be reviewing their investment portfolio to determine if there is opportunity to invest in assets with capital appreciation benefits.

Employee remuneration

For employers and employees too, there are opportunities arising from the 18% tax rate. Compared to a cash bonus, employee share schemes can further benefit employees with a lower rate of tax on disposal of the shares.

How can we help solve this issue?

Changes to capital gains tax are far reaching, affecting many individuals, companies and partnerships. Those affected should consider what planning opportunities are available to take advantage of the changes. PricewaterhouseCoopers can help you determine how you are affected and what options are available to you. Please contact your usual PwC adviser or one of those listed above.