Capital gains tax strategies
There are only a few weeks left to benefit from capital gains tax (CGT) taper relief for business assets. From 6 April 2008, only the sale of assets that amount to the whole or part of a business will be taxed at 10% – the current maximum rate for business assets that the seller has owned for at least two years.
The new relief, to be called entrepreneurs’ relief, will apply to business sales by sole traders or members of partnerships, and to sales of shares in a trading company by a director or employee who holds at least 5%. Only the first £1 million of lifetime gains will qualify. All other gains by individuals and trustees will be taxed at 18%.
Taper relief will be lost entirely. This includes taper relief on gains that were rolled over or deferred, for example, when a taxpayer has replaced a business asset with another one or reinvested a gain in shares under the enterprise investment scheme.
If you are thinking of selling a business asset, you could save tax by making the sale before 6 April 2008. A sale takes place for CGT when the parties have entered into an unconditional contract. It does not matter if completion and payment come later, which is common with sales of land and buildings. For all transactions before 6 April 2008, the CGT is payable on 31 January 2009.
Assets that qualify for business taper relief but almost certainly not for the new entrepreneurs’ relief include land and buildings, and other assets that you use in your business (unless associated with a business sale), and many company shares – the rules are complex. Let commercial property can also qualify for taper relief.
Remember when accelerating the sale of any business assets that the purchaser may well take advantage of the deadline to negotiate a better price – early in the process or even at the last moment.
If you previously sold a business and received loan notes in return, you might be able to sell or redeem them before 6 April 2008. This would release the deferred gain, which will qualify for taper relief based on the business you originally sold. If you dispose of the loan notes after 5 April 2008, you will lose the associated taper relief.
If you do not want to sell assets or cannot do so before 6 April 2008, there are other ways of crystallising a gain. For example, you could transfer assets to a family trust. However, such arrangements could accelerate the tax liability and may involve other costs. Good professional advice is essential.