Entrepreneurs relief is a 10% rate of capital gains tax which applies instead of the usual 20% rate to qualifying disposals of interests in trading businesses and shares in unquoted trading companies.
The Institute of Fiscal Studies (IFS) reported that the annual cost to the Exchequer of entrepreneurs relief was £2.4 billion and questioned the benefits of this to the country when the relief is given to business owners who sell. The new conservative government are apparently looking at the relief.
Since the introduction of capital gains tax in 1965 there has always been a relief for the sale of a business. Initially this was retirement relief which was phased out around the turn of the millennium and a new relief, taper relief, phased in which resulted in a 10% rate of capital gains tax on unlimited gains.
Taper relief was abolished in respect of gains arising after 5 April 2008. Amid much protest, the Chancellor introduced entrepreneurs relief, to provide a 10% rate but with an upper limit of only £1 million. This limit increased and is currently £10 million.
Just as in 2008, the Government may be persuaded to leave at least an element of entrepreneurs relief in place, if not completely intact.
If however you are considering selling your business or company, you may wish to accelerate this, particularly if you are already in discussion with possible purchasers.
If you are prepared to pay a 10% charge on a gain upfront, you may wish to dispose of shares or an interest in your business to family members or a trust so that the recipient has an uplift in the tax base case in the event of a future disposal. This strategy does however fly in the face of the old adage that tax deferred is tax saved.
While our crystal ball is no better than your own, please do get in touch if you would like to discuss this.
|Click here to contact John Cairns for more information or if you would like to discuss.|