With the Autumn Statement taking place on 30 October, amongst other speculation, it’s being wildly reported that Capital Gains Tax (CGT), will be increased.
Although we’re not sure exactly what the changes to CGT will be, it could include a mixture, or a combination of:
- Increasing the standard rates of CGT.
- Removal of Business Asset Disposal Relief (BADR).
- Removal of Employee Ownership Trusts (EOTs).
Connor Smith, Senior Tax Manager, has outlined what options will be available, should any of the above outcomes come to fruition.
Take it away Connor
Currently, CGT is imposed on the profit from the sale of capital assets. This includes:
- Investments.
- Second homes.
- Shares.
- Business assets.
- Personal possessions (apart from cars).
As it stands, you do not have to pay tax on the first £3,000 of profits, or £1,500 for trusts. The minimum limit however is now being speculated to be removed, and the tax could then be imposed on assets which are currently exempt.
For those who hold significant assets, the upcoming Budget could introduce measures that increase your tax liabilities significantly.
Below I’ve outlined measures you can take to safeguard your business and highlighted the options available.
Planning opportunities to think about now
Existing transactions (including incorporations)
This option is simple but if you’re going through a transaction currently, you should be encouraged to push through before the budget. This is to make sure to bank the current rates of CGT in place, or to at least create an unconditional obligation if you aren’t quite at completion.
If you’re going through a transaction in the next 12-18 months…
Planning is available which would result in triggering a CGT charge now, which would result in the base cost of the asset being uplifted to market value (with any tax due payable by the sale proceeds).
It would therefore only be any increase in value from the date the shares are transferred that will be subject to tax at the potentially higher rates.
It should be noted that if the CGT charge is triggered, the election is irrevocable and if the sale does not complete, CGT will be payable even though no cash has been received on sale.
Sale in the medium term
Shareholders should consider whether creating a group would be advantageous from a tax perspective and, if you already have a group, we strongly recommend that the structure is reviewed to maximise tax efficiency.
Consider selling an interest to an Employee Ownership Trust (EOT)
These can be implemented within 6 weeks (at a push!) and can generate a significant level of proceeds which would be due to the shareholders tax free. The shareholders could sell (at minimum) 51% to an EOT, retain the balance of the shares, be paid a significant amount tax free and continue to be paid market rate salaries.
If you’re looking to sell your business in the next 3 years, this could be particularly of interest (even if the value is lower than desired currently, the tax-free exemption could result in the same proceeds after tax in future when the value increases).
EOTs aren’t for everyone, however, and so we recommend careful consideration of all factors (commercial and financial) is done before any decision is made.
Sell the trading company from a holding company
Holding companies selling shares in a trading company can qualify for Substantial Shareholding Exemption (SSE), however, any proceeds are paid into the limited company.
This could be extremely useful for those individuals looking to retire overseas or do not require the cash personally (as the company could use the proceeds to make alternative investments and drip-feed the cash out by dividends over a number of years).
Here to help
If you have any concerns with the potential changes to CGT, we can help. To speak to one of our friendly Tax Advisors, or to arrange a one-to-one session with one of our tax experts, fill out the form below and they’ll be in touch shortly.
