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Capital Gains Tax (CGT)
The annual exemption has been increased for 2001/02 by £300 to £7,500 for individuals. The exemption is also available to personal representatives of a deceased person, for gains in the year of death and in the following two years, and to the trustees for a mentally handicapped person or those in receipt of a disability living allowance. For trustees of other settlements the annual exemption has increased by £150 to £3,750.
| Tax tip |
| If you are considering accelerating your retirement to make the most of CGT retirement relief, don't forget to consider the implication of taper relief. |
Rates of Tax
For individuals, gains in excess of the annual exempt amount are added as a top slice to savings income. For 2001/02 taxable gains within the starting rate band (£0 - £1,880) will be taxed at 10%, gains between £1,881 and the basic rate limit of £29,400 will be taxed at 20%, and the excess at 40%.
The rate applicable to trusts remains unchanged at 34%.
| Planning tip |
| The use of trusts in tax and financial planning can create a flexible and tax-efficient structure for your family. |
Business Assets
As previously proposed business asset taper relief is extended to all employees disposing of shares in non-trading companies in which they work, providing they did not have a material interest in the company.
A material interest exists if the individual held or is entitled to acquire more than 10% of the shares, voting rights, profits available for distribution, or assets on a winding-up or in other circumstances. The rights of connected persons, including spouses, relatives and certain trusts and companies are also taken into account.
There will be no change to the treatment of shares held by employees in trading companies in which they work, or shares held by non-employee shareholders.
The new definition of business asset applies to disposal of shares after 6 April 2000. Where assets qualify as business assets only from that date the gain will be apportioned to identify the part that qualifies for the higher rate of relief.
The relief potentially reduces the CGT rate from 40% to 10%.
The relief also applies to trustees of a settlement where an eligible beneficiary is an employee or officer providing the level of the combined shareholdings of the trust and connected persons does not exceed 10%.
For trustees of a settlement, assets other than shares, used for the purposes of a trade by a partnership of which the trustees are a member, will also qualify for business asset taper relief.
Inheritance Tax (IHT)
The nil rate band has been increased by £8,000 to £242,000 with effect from 6 April 2001. The rates of tax remain unchanged.
The rates of business or agricultural property relief remain unchanged. Potentially exempt transfers and deeds of variation were also unaffected.
| Tax tip |
| Inheritance Tax is often called the "optional" tax - talk to us if you want to "opt out". |
Duties
Alcoholic Drinks and Tobacco
It was announced that duties on spirits, wine, beer and other alcohol would be frozen.
A new reduced duty rate for small breweries has been proposed and the Chancellor announced measures to counter the avoidance of tax on cider.
The tax on cigarettes rises by 6p a packet. Increases, in line with inflation, have also been announced on other tobacco items.
Vehicle Excise Duty (VED) and Road Fuel Duty
The Chancellor announced that, with effect from 1 July 2001, the £55 VED discount for the smallest engined cars registered before 1 March 2001 will be available for cars with engine capacities up to 1549cc. This change is backdated to November 2000 and rebates will be sent to eligible motorists in July 2001.
Changes to the VED on lorries were also announced, including details of a proposed system of seven broad rate bands. As proposed, rates vary from £160 to £1,850. VED on tractors and other vehicles in the special concessionary class will be abolished from 1 April 2001.
Most road fuel duties have been frozen, while the rate of duty on ultra-low sulphur fuels has been reduced - by 2p per litre for petrol and 3p per litre for diesel - with a temporary reduction of 2p per litre for unleaded petrol until 14 June 2001.
| Tax tip |
| As your marginal tax rate increases, tax planning becomes ever more important. |
Betting and Gaming Tax
It is proposed that General Betting Duty will be replaced with a 15% tax on bookmakers' gross profits and that the gross profits tax on spread betting will be reduced to 3% for financial spread bets and 10% for others.
On-course betting will continue to be exempt from duty, while gaming duty bands for casinos are to be uprated.
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