Capital Taxes

The annual exemption has been increased for 2003/04 to £7,900 (2002/03 £7,700) for individuals and to £3,950 (2002/03 £3,850) for most trusts. The rates of tax remain unchanged.

The business assets rate of taper relief has been relaxed so that a wider range of assets will qualify. These provisions will apply to periods of ownership from, and disposals on or after, 6 April 2004.

Where an asset is disposed of wholly or partly for a right to unascertainable deferred consideration the market value of the right at the time of disposal is included in the calculation of the chargeable gain arising on the disposal of the asset. Where the right is itself disposed of in a later tax year and a loss arises (by reference to the original market value of the right) the loss cannot normally be set off against the gain on the original asset. From 10 April 2003, it will be possible to set off such losses against the original gain made on the sale, subject to certain conditions. The main conditions are:

• the loss must arise on a disposal of a right to unascertainable deferred consideration
• the person must not have acquired the right second-hand
• a disposal of the original asset for which the right was received must have given rise to a chargeable gain; and
• the person must have had a CGT liability for the tax year in which that disposal was made.

For earn outs conferred up to 9 April 2003 the rule is that on application the earn out right will be treated for CGT purposes as a security, and in consequence any gain which would otherwise be treated as crystallising at the point of exchange will not do so. For earn outs conferred on or after 10 April 2003 the rule is reversed and treatment of the right as a security is automatic unless an election is made to the contrary.

For options exercised on or after 10 April 2003 the method of computing chargeable gains or losses is restored to that which was generally thought to apply before the judgement in Mansworth v Jelley.

Further anti-avoidance measures have been introduced regarding capital payments made by trustees of offshore trusts to UK resident and domiciled beneficiaries from 9 April 2003, to prevent payments avoiding the charge to CGT.

It has been possible to dispose of a second-hand life insurance policy and generate either a tax free capital gain or a tax deductible capital loss. For disposals on or after 9 April 2003, any capital loss generated will be restricted to the amount of any real economic loss. Gains will only remain tax free in certain circumstances.

From 9 April 2003, a number of tax anomalies and loopholes relating to life insurance policies have been ended. These remove tax charges on certain group life policies and policies held by charitable trusts and other persons. They also close loopholes in connection with policies held on trust and the misuse of the 5% withdrawal rules.

Changes which apply from 16 October 2002 will make it easier for foreign investors to receive interest from AUTs and OEICs gross and will remove a potential IHT charge.

Companies have previously had to cancel any of their own shares which they have repurchased. From a date to be announced, quoted and AIM companies will be able to retain rather than cancel any shares they repurchase, and (if they wish) resell them. Such shares are known as "treasury shares".

With effect from the 2004 tax return (gains, year ended 5 April 2004) it will not be necessary to complete the capital gains pages of the self assessment tax return if the gains for the year, net of taper relief, do not exceed the annual exemption (£7,900 for 2003/04) unless either proceeds from non-exempt disposals in the year exceed four times the annual exemption or losses are set against the gains.

The main change the Chancellor announced is an increase in the nil rate band to £255,000 (2002/03 £250,000)

VED for lorries and motorcycles is frozen, while rates for cars and vans are increased by £5 from 1 May 2003.

The annual increases in the main road fuel duties are deferred until 1 October 2003. New rates will be introduced for sulphur free petrol and diesel from 1 September 2004. Reduced rates for Bioethanol used for road fuel will also be introduced from 1 January 2005.

Rates of insurance premium tax, climate change levy, airport passenger tax and aggregates levy remain unchanged, although anti-avoidance measures are to be introduced against protected cell companies. Landfill tax rates increase by £1 per tonne from 1 April 2003 and similarly from 1 April 2004, and then £3 per tonne from 1 April 2005 and will do so each year to a maximum of £35 per tonne.

From 10 April 2003 relief from duty is introduced on all non-residential property transactions in disadvantaged areas. With effect from 1 December 2003 the zero rate band will be increased to £150,000 for all other commercial property transfers and leases, whilst VAT will be excluded from treatment as consideration for a new lease provided the landlord has not opted to tax. Also from 1 December 2003 changes will be made to alternative finance arrangements to avoid double duty. Anti-avoidance measures applicable from 15 April 2003 will affect group and acquisition relief clawbacks, with further measures likely from 1 December 2003 relating to leases or rentals.