The Office of Tax Simplification’s Report last week on capital gains tax made a number of suggestions to the Chancellor which if introduced would fundamentally change the capital gains tax rules in the UK. This Report and the proposals made therein clearly point to the intention to align the capital gains tax rates with income tax rates and this would dramatically increase the tax due when businesses are sold. The likelihood of capital gains tax rates going up in the new year is very high.
This would be a major blow to business owners who have spent years building up their businesses with the anticipation of reaping the benefit for all their hard work on finally selling /exiting the business. You will remember that it was only in March 2020 that the entrepreneurs’ relief limit was reduced from £10 million to £1 million with a balance of capital gains tax payable at a rate of 20%. If this 20% rate increases to 45% from Budget day then, in a little more than a year, business owners will have seen a fourfold increase in the total tax they will pay when they sell their business.
Clearly in the midst of the chaos and uncertainty brought about by the Covid-19 pandemic and with the additional challenges of Brexit looming this is not the ideal time to rush and attempt to sell your business and there are many other routes to consider.
If this is a matter of concern to you please do get in touch either via your usual contact in the Firm or directly with one of the Partners of the Practice. We would be happy to listen to your particular concerns and issues and to talk you through what is possible in the time available. We would look to maximise the value you can generate in the current economic climate with a view to arriving at a plan which suits your particular situation and circumstances.
We could explore for example:
- Management buy-out structures
- Family succession planning using trusts
- Family Investment Companies
- Indirect employee ownership, using a tax exempt disposal to an employee ownership trust
- Or assist with a sale that you have been contemplating for a while if that is what you intend to do now
If you would like an initial discussion to talk through any concerns you may have or plans you are considering please do get in touch.