As widely anticipated, the Chancellor announced significant changes to the Capital Gains Tax (CGT) system.

However, rather disappointingly, he chose neither to abolish the tax altogether nor did he make it any simpler.

Instead, the Chancellor announced a number of fundamental changes, which are likely to mostly affect investors.

Indexation allowance (which effectively reduces a capital gain by taking into account the effects of inflation) will be frozen from April 6.

To help offset the loss of the indexation allowance, a form of taper-relief has been introduced whereby gains realised on holdings will be reduced according to how long they have been held after April 5.

There will be no relief for holdings of less than three complete years, with a reduction of five per cent per complete year held thereafter, up to a maximum of 40 per cent relief for holdings of ten years or more.

The relief will be applied to net gains remaining after the deduction of any capital losses which are brought forward or realised in the same year.

Where an asset has been transferred between spouses, taper relief will be calculated on their combined period of ownership.

More generous levels of relief will be given to business assets.

Holdings which were acquired before March 17 (Budget Day) will be credited with an additional one year of ownership.

Jeremy Roff is a partner with Coopers & Lybrand

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