The rates of CGT remain at 18% to the extent that any income tax basic rate band is available and 28% thereafter. The rate for disposals qualifying for Entrepreneurs’ Relief (ER) is 10% with a lifetime limit of £10m for each individual.
The ER limit is very generous and owners of businesses should ensure that they meet all the conditions necessary to secure the relief throughout the twelve months up to the date of a disposal.
The CGT annual exemption has been frozen at £10,600 for 2012/13.
Bank accounts denominated in a currency other than sterling are chargeable assets for CGT. There is an exemption where the account is held by an individual and is used to meet personal expenditure abroad. This means that every withdrawal technically constitutes a disposal for CGT purposes and a gain or loss can arise by reference to movements of exchange rates.
It is now proposed that the exemption from CGT will apply to all foreign currency bank accounts held by individuals, trustees of settled property and personal representatives of deceased persons. This exemption will apply for all withdrawals made on or after 6 April 2012.
The IHT nil rate band remains frozen at £325,000 until 6 April 2015.
The Government will introduce a reduced rate of IHT for an estate where a minimum level of legacy has been left by the deceased to charity. The actual legacy to charity remains exempt from IHT and it is the rate of tax on the balance of the estate that would be reduced to 36% from 40%.
The reduced rate will apply where charitable bequests satisfy a 10% test. A comparison will be made between:
If the first figure is at least 10% of the second then the balance of the estate will qualify for the reduced IHT rate of 36%.
Special rules apply if the estate includes either:
The changes will apply to estates where the individual dies on or after 6 April 2012.
Because the benefit of the reduced IHT rate will be dependent on whether or not the amount of the charitable legacy is sufficient for the estate to pass the 10% test, there will be a ‘cliff edge’ effect.
Where the amount of the charitable legacy is close to the critical 10% point, a small difference to the amount of the legacy could have a much larger impact on the estate’s IHT liability. There are no plans to apply any taper or other mechanism to mitigate this.
The Government will consult on two areas for inclusion in Finance Bill 2013:
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