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Capital Gains Tax Update

In our January article we spoke about proposed changes to Capital Gains Tax and the furore the changes had created.  We suggested that business owners tempted to sell ahead of April’s rate hike might be well advised to postpone that decision until a clearer picture emerged – and we were right.

As a result of the protests the Chancellor has now announced that he is bringing in a new form of tax relief called “Entrepreneurs’ Relief”.

The abolition of Indexation Relief and Taper Relief and the introduction of a flat rate of 18% will remain on the books.

In essence, “Entrepreneurs’ Relief” is loosely based on a form of relief abolished some time ago called “Capital Gains Tax Retirement Relief.”  However there are some significant differences.  For example, the new relief seems much less complicated with no minimum age or ten year qualifying period as there was with Retirement Relief.

The proposed relief means that as from April anyone selling a business (or part of a business) can have up to £1 million of capital gain taxed at only 10% instead of the new flat rate of 18%.

This rate of tax is broadly in line with what business sellers would have obtained under the now abolished Taper Relief, though previously the 10% effective rate was not limited to £1 million.

However, a word of caution: selling a business asset like a building is not the same as selling part of a business and may not attract relief.  However, if you dispose of a building and part of your business is sold along with it, then that will qualify.

The new relief also applies to the sale of shares.  If you own 5% of the issued share capital and you hold full voting rights then the sale of those shares will qualify for Entrepreneurs’ Relief.

So, should a business owner sell or sit tight?  There is no “one size fits all” solution and each case must be judged on its merits.  What we do know is that Entrepreneurs’ Relief is on its way, but at the moment and pending publication of the draft legislation, we are still short on detail.

For further information contact Jeff Harrison.

The information given in this article is of a general nature only and should not be considered as advice applicable to any particular situation for which specific request should be made to us.