October 11, 2007
A key announcement in the pre-Budget report on 9th October 2007, was the proposed restructuring of the capital gains tax (CGT) rules from 6th April next year. This is likely to have a significant impact on exit strategy for many business owners over the coming months.
Under the current taper relief system, owners who have held qualifying business assets for at least two years are able to pay as little as 10% CGT on gains from the sale of those assets. This includes shares in unquoted traded companies (AIM companies are treated as unquoted for these purposes), shareholdings carrying at least 5% of the voting rights in quoted trading companies and shares held by an officer or employee of any such company. Taper relief applies to individuals, trustees and personal representatives, but not to companies.
This system is set to be scrapped after 5th April 2008 and replaced with a new flat rate of 18% on any gain, regardless of the length of time the asset has been held. The personal annual exemption will remain at £9,200.
These changes will result in a significant increase in the tax burden for a large number of entrepreneurs, family businesses and business angels (for whom the lower rates were originally designed) and will leave the UK with a higher capital gains tax rate than a number of other countries, including USA, France and Italy. As a result, many investors will be tempted to put their businesses or shares up for sale before the April deadline. Some commentators fear that this will create a buyer’s market resulting in deflated prices. Whatever the likely outcome, anyone holding business assets currently standing at a substantial gain would be well advised to obtain a calculation of the likely CGT charge on a disposal before and after the rule change and to act promptly if they do plan on selling so as to beat the April deadline.
Our Corporate Group has many years’ experience advising on business and share sales. If you are thinking of selling (or buying) we will be happy to discuss how we can help.