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The Chancellor of the Exchequer, Alistair Darling, announced radical changes to capital gains tax (CGT) in his November 2007 pre-budget report, most of which came into effect on 6 April 2008.

These have had wide-ranging implications for investors in ordinary shares, AIM companies, SAYE schemes, VCTs, EMI schemes, second properties and anyone selling a business.

Q: What are the main changes which came force on 6 April 2008?

Capital gains are taxed at a flat rate of 18 per cent and taper relief and indexation relief have been scrapped.

Q: Are there any exceptions?

Yes. In January 2008, Alistair Darling announced a new ‘entrepreneur’s relief.’ This enables anyone selling a business/es after 6 April 2008 worth up to £1m in total to be taxed at 10 per cent, (rather than the flat rate 18 per cent CGT applicable to all other capital gains), providing they own at least 5 per cent of the company.

The £1m allowance is a lifetime allowance, so you could sell several small businesses worth up to £1m in total during the course of a business career.

Q: How were capital gains taxed prior to 6 April 2008?

A: The rate at which you paid capital gains tax was dictated by the top rate at which you paid income tax, so a higher rate taxpayer paid it at 40 per cent and a basic rate taxpayer at 20 per cent until 5 April 2008.

There were also various reliefs for inflation (indexation) and taper relief which could significantly reduce your liability, if you had held assets for a long time. This could reduce a basic rate taxpayer's CGT liability to as little as 5 per cent on certain investments.

That said, each individual continues to have a personal CGT-free annual allowance of £9,600 in tax year 2008-09 (£9,200 in 2007-08).

Q: How are holiday lettings affected?

You are worse off now than before. If you own a qualifying furnished holiday let, it is regarded as a business asset and since 6 April 2008, it is  liable to CGT at 18 per cent on sale, whereas in tax year 2007-08, you would have paid 10 per cent CGT (assuming that you were a higher rate taxpayer).

Q: I have a share portfolio. Will I pay less if I sell them after 6 April 2008?

Yes, you will pay less for selling your shares after 6 April 2008, provided that the shares are fully listed shares. You will pay 18 per cent now, rather than 24-40 per cent which you would have paid prior to 6 April 2008 (the rate depending on how long you had held the shares).

Q: I have AIM-listed shares in unlisted companies. How will I be affected?

Since 6 April 2008, you are liable to CGT at 18 per cent on these assets. The same applies to the sale of shares deriving from Save as You Earn Share Option Schemes (SAYEs).

Any capital gains in exess of the annual exemption limit is taxable at 18 per cent, (instead of 10 per cent for higher rate taxpayers, or 5 per cent for basic rate taxpayers prior to 6 April 2008).

Q: I bought AIM shares as part of my inheritance tax planning. How are they affected?

Provided that you held AIM shares that were eligible for business asset taper relief for a minimum of two years prior to 6 April 2008, the original investment, plus any subsequent growth, will remain outside your estate for inheritance tax purposes.

However, if you dispose of shares you have held for two years and the sale takes place after 6 April 2008, you will have to pay CGT at 18 per cent, rather than the 10 per cent you would have paid under the old rules.

Individuals with smaller estates may decide that an AIM portfolio is not worthwhile now that the IHT threshold for married couples and registered civil partnerships has risen to £625,000 (2008-09 tax year).

Q: How about VCTs and EIS? Am I better off post 6 April 2008?

If you took advantage of the old rules that allowed you to defer your capital gains by investing in a venture capital trust before 2004, you will be a winner. Under the old rules, you would have had to pay CGT at 40 per cent, but since 6 April 2008, you will be liable to 18 per cent CGT.

If, however, you rolled over capital gains with a 10 per cent liability into shares in an Enterprise Investment Scheme, you are worse off now.

This is because when you sell the EIS shares now, the rolled-over gain is taxable at 18 per cent, rather than the 10 per cent that you would have paid had you not done the rollover in the first place. Gains made on the EIS itself remain free of CGT.