CGT revision could see the return of the rollover

The announcement of a new 'Entrepreneur's Relief' from Capital Gains Tax might prompt the return of the 'rollover effect', according to Lincolnshire-based property and business consultants JHWalter.

In response to pressure from the business community the Chancellor, Alistair Darling, has created a new relief from Capital Gains Tax which will help to alleviate the tax burden on smaller businesses.

Whilst the standard rate of CGT remains at 18%, the first £1 million of gains qualifying for relief will be charged at an effective rate of 10%.

Chartered Surveyor at JHWalter Kate Russell explained: "Entrepreneur's Relief is a re-working of the old Retirement Relief which helped sole traders and those in partnerships when they sold their businesses.

"The new relief will mean an effective rate of 10% CGT on the first £1 million of gain made when business assets are sold, as opposed to 18% under the original proposals. This 10% rate is the same as before the Chancellor changed everything in the autumn, so it's 'as you were' for smaller businesses.

"However, the £1 million limit is a lifetime limit and whilst smaller businesses will benefit, some entrepreneurs with larger scale businesses will use this up fairly quickly. In these situations we may well see more use of Rollover Relief in future."

Rollover Relief allows business owners to re-invest gains made into a new business asset without any charge to CGT, but there is a time limit of three years to use it.

"In the past this rule led to people bidding high prices to secure a purchase before their time limit ran out and they had to pay the full amount of tax," said Kate. "We might see a return of this so-called 'rollover effect' in future and a consequent further increase in prices for farmland."