Schedule 2
Finance Bill
9:00 am
Jane Kennedy (Financial Secretary, HM Treasury; Liverpool, Wavertree, Labour)
Thank you, Sir Nicholas, for your introduction. I am grateful to you and your colleagues for being flexible on our starting time this afternoon. It will give us the opportunity to pay our respects to our very good friend.
Schedule 2 delivers the central elements of the capital gains tax reform programme announced in the 2007 pre-Budget report, with the changes taking effect from 6 April 2008. They are complemented by the new entrepreneurs relief, which is delivered by schedule 3, and which we will discuss in detail later. Taken together, this major reform of the capital gains tax regime will deliver a system that is more sustainable and straightforward for taxpayers, while remaining internationally competitive.
The schedule makes changes consequential to the new 18 per cent. capital gains tax rate introduced by clause 6; it abolishes taper relief and indexation allowance; it simplifies the rules for rebasing of costs to 31 March 1982 by requiring rebasing for all assets held on that date and by abolishing the associated halving relief; and it simplifies the rules for matching the acquisition and disposal of certain assets. Those changes replace layers of complex rules built up over many decades with a substantially simpler capital gains tax framework. For completeness, I remind the Committee that the tax-free annual exempt amount for 2008-09 is set at £9,600 per person and is not altered by the provisions in this schedule.
The amendments make a straightforward correction to the part of the schedule that deals with the definitions of a “trading company” and a “trading group”. Those definitions are relevant for a number of capital gains tax purposes, including the relief for gifts of business assets and the new entrepreneurs relief. Until now, the definitions were embedded in the legislation governing taper relief, which is being repealed. Schedule 2 therefore contains provisions intended to preserve the relevant definitions without altering their wording or effect.
Following publication of the Bill, it came to our attention that the provisions were incomplete in respect of companies with holdings in joint venture companies. The amendments in this group complete the provisions so that they fully reproduce the relevant trading company and trading group definitions. Making this change will ensure that the policy operates as it was always intended to. I therefore commend the amendments to the Committee.