One of the questions we are asked at the moment is if CGT rates are increased at this year’s Budget, will the change take effect from Budget day, or from 6 April.
If history is to offer any sort of guide, there is not a straightforward pattern. Major changes to CGT, like taper relief removal announced in 2007 or Nigel Lawson’s 1988 equalisation of CGT rates (to income tax rates) were introduced from the beginning of the following tax year (6 April) so provided a period of time before they took effect. Comparatively, the Coalition’s 2010 increase to 28% took effect from midnight on Budget day.
Given the speculation that rates could increase, the timing of a disposal may make a material difference to the CGT liability. The time of disposal for CGT, under s28(1) TCGA 1992, is the time the contract is made and not, if different, the time at which the asset is conveyed or transferred. However, if the contract is conditional, the disposal and acquisition are made at the time the condition is satisfied. This means that the date of disposal for unconditional contracts is usually the date of exchange of contracts. Further comment on the conditions in contracts can be read in an earlier blog by my colleague Sarah Shucksmith.
One final thing to watch out for is any anti-forestalling rules. At the last Budget, anticipating that certain arrangements may have been entered into to secure pre-Budget treatment, the government introduced further conditions to accompany its changes to the lifetime limits of Entrepreneurs’ Relief. Drafting was introduced that meant where unconditional contracts had been entered into, taxpayers would also need to demonstrate that (1) they did not enter into the contract with a purpose of obtaining a tax advantage by reason of the timing rule in section 28 (i.e. entering into a unconditional contract to secure pre-Budget Entrepreneurs’ Relief treatment) and (2) where the parties to the contract are connected, that the contract was entered into for wholly commercial reasons.