Annual exemption

The annual exemption for individuals has been increased to £9,600 for 2008/09 (2007/08: £9,200). Trustees receive half this figure (£4,800 for 2008/09; £4,600 for 2007/08), although this may be shared between trusts which have been set up by the same person..

Major reform of the tax
As announced in the Pre-Budget Report in October, the following major changes will take effect for disposals on or after 6 April 2008

• abolition of taper relief, which since 1998 has reduced the chargeable gain based on the length of ownership and has reduced the effective rate of tax on business assets to 10%

• abolition of indexation allowance, which was added to the cost of assets owned since before 1998 to allow for the effect of inflation - this has been frozen at the 1998 figure since then, but even the frozen figure will disappear in 2008/09

• introduction of a single flat rate of 18% to replace taper relief, indexation allowance and the charging of gains at the taxpayer's marginal rate of income tax (10%, 20% or 40%).

• changes to the tax treatment of assets that have been owned since before 31 March 1982 - in future, only the market value at 31 March 1982 will be used to compute gains, and the original cost will be ignored altogether

A number of plans have been put forward as ways of preserving the benefit of some of the reliefs before they are abolished. The Budget did not include any measure to close this planning down.

The changes will allow a very significant simplification of the rules for computing gains on shares and securities. In most cases shares in the same company will be "pooled together" and treated as a single asset from which disposals are taken at average cost.

Many other aspects of CGT - for example, the exemption of the only or main residence and the deferral of gains using reinvestment in Enterprise Investment Scheme shares - remain unchanged. The taxation of gains of companies is also unaffected, as they pay corporation tax rather than CGT.

Entrepreneurs' Relief)

A new relief will be introduced for disposals after 5 April 2008 to compensate some of those who would have enjoyed an effective rate of CGT of 10% under the taper relief regime for business assets. The main rules are:

• the asset disposed of must be a business or an interest in a business, shares in a company for which the individual works and owns at least 5%, or related assets owned outside such a business or company and disposed of at the same time

• the assets must have been owned for at least a year.

• an individual will have a lifetime allowance of gains of up to £1m which will be eligible for the relief - this limit will be applied cumulatively to successive disposals.

• the relief will operate by reducing the chargeable gain by 4/9, cutting the effective rate of tax from 18% to 10%.