For example, if the sale of a business realises £450,000 gains, the gains will be reduced by 4/9ths (£200,000) and £250,000 will be liable to 18% CGT (subject to deduction of any allowable losses and annual exempt amount) giving a tax charge of £45,000 (an effective 10% rate on a gain of £450,000).

Generally, 'Entrepreneurs Relief' will be available where relevant conditions are met for a period of one year as follows:

• Relief applies to gains arising on disposals of whole or part of a trading business (including professions and vocations, but not including property letting businesses other than furnished holiday lettings) carried on by an individual either alone or in partnership.
• Where a business simply ceases, relief is available on gains on assets formerly used in the business and disposed of within three years of cessation.
• Relief also applies to gains on disposals of shares and securities in a trading company provided the individual making the disposal has been an officer or employee of the company and owns at least 5% of the ordinary share capital which enables the individual to exercise at least 5% of the voting rights in that company.
• Where an individual qualifies for relief on disposals of shares and securities above, relief will also be available in respect of any “associated disposal” of an asset that was used in the company's business e.g. where a company director owns the premises from which the company operates. Relief is restricted where the asset is not wholly in business use throughout the period of ownership.
• Similarly, a member of a partnership who is entitled to relief on disposal of his interest in the assets of the partnership will be allowed relief on an “associated disposal”. Again, relief will be restricted where the asset is not wholly in business use throughout the period of ownership.
• Trustees will also be able to benefit from relief on gains and assets used in a business. In order for trustees to benefit, a beneficiary of the trust with an interest in possession relating to those assets must be involved in carrying on the business in question, personally or as a partner.
• In the case of shares, a beneficiary must qualify as an officer or employee of the company in question.
• The £1m maximum limit on eligible gains will apply to the trustees and the qualifying beneficiary jointly.

If you have any concerns and would like to discuss these changes, please get in touch with your usual contact at Frank Hirth.

Another major change proposed by Alistair Darling in his first pre-budget report in October 2007 was to introduce a flat rate of 18% for Capital Gains Tax (CGT). On 24 January 2008 the Chancellor confirmed the proposals of his pre-budget report and the only concession he made following considerable lobbying on behalf of small businesses was that there would be a new 'Entrepreneurs Relief' on the first £1m of gains realised by some entrepreneurs.

The draft legislation issued on 24 January 2008, will:

• introduce a single rate of CGT of 18%
• abolish indexation allowance
• abolish taper relief
• make rebasing of cost to 31 March 1982 compulsory
• simplify the rules for matching certain assets (mainly shares) disposed of with assets acquired

The changes affect individuals, trustees and personal representatives with a gain chargeable to capital gains tax. They do not apply to companies that are liable to corporation tax in respect of their chargeable gains.

The changes will not affect the availability of the annual exemption, currently £9,200, which will increase from 6 April 2008. Other reliefs such as private residence relief, business asset roll over relief, EIS and VCT reliefs, business asset gift relief and losses from previous years will continue to be available.

The Chancellor also announced a new relief, 'Entrepreneurs Relief' which, will take effect from 6 April 2008 alongside the changes above.

The relief will be available in respect of:

• Gains made on disposal of all or part of a business.
• Gains made on disposals of assets following cessation of a business.
• Gains made by certain individuals involved in running the business.

The first £1m of gains that qualify for relief will be charged to CGT at an effective rate of 10%. Gains in excess of £1m will be charged at the rate of 18%. In practice, the relief will work whereby individuals will be able to make claims for relief on more than one occasion, up to a lifetime total of £1m of gains qualifying for relief.

The relief will effectively reduce gains liable to CGT at the single rate of 18% by 4/9ths, resulting in an effective 10% rate (5/9ths x 18%).