If I understand the PBR correctly our wonderful Chancellor is proposing the complete abolition of taper relief and indexation allowance. Most commentators have referred to an 80% increase for basic rate taxpayers. I can see that a rate rise from 10% to 18% is 80% but surely the increase in tax payable is really far more than 80%.
Consider a taxpayer with no other income (for simplification purposes).
Date asset acquired 1 April 1999
Date of disposal 31 March 2007
Amount of gain before annual exemption and taper relief £50,000
Annual exemption £8,800
Business use 100%
Taper relief available 75%
50,000 x 25% = 12,700 - 8,800 = 3,700
CGT payable £525.00
(2,150 x 10%) + (1,550 x 20%)
If the Chancellors proposals had been in force for 2006/2007 surely the CGT payable would have been £7,416.00. (50,000 - 8,800) x 18% = £7,416.00
Am I being incredibly stupid or have I missed something but that looks far more like 1,312% than 80% to me.
J Smith
Replies (2)
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This amounts to a new tax on small business / savings
and lots of people agree with you; so much so that the Chancellor is going to back down.
Exempt amount
I don't understand where you get £525 from but part of the explanation for the effect is that the annual exempt amount currently gives relief in terms of tax at either 20% or 40% which obviously makes it more valuable than if the relief is at 18%.