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, ie 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. We will stay abreast of any further developments so
please keep in touch.
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