25 January 2008 - New Entrepreneurs Relief

It has been an anxious few months for business owners, facing a jump in their Capital Gains Tax rate from 10% (after taper relief) to a flat 18% from 5 April 2008. 

These proposals have proved controversial – business groups have turned-up the pressure over recent weeks to try and force a climb-down or rethink. As a result, the Chancellor announced on 23 January a concession for business owners selling or disposing of their business. It looks set to restore a 10% tax rate for many business owners but as always the details may derail things for some people.

In principle, a business owner can now sell one business or a number of businesses and enjoy a 10% Capital Gains Tax rate on the first £1million of gains. The relief will apply to ‘associated disposal’ of assets, for example trading premises that are sold at the same time as the business.

With such rapid and unpredictable changes in direction by the government, planning ahead remains difficult and the detailed legislation on this issue is not yet available. There will inevitably be opportunities and pitfalls arising from the changes and these will come to light over the next few weeks. 

As always, make sure that you keep in close contact with your Target adviser – the changes ahead are important ones and could make a large impact on your finances and business strategies

To speak to an expert about these changes, please email us, request a call back or phone 0845 241 3387.

Ever since Alistair Darling’s pre-budget announcement on 9^th of October there has been tremendous uncertainty over Capital Gains Tax.  For business managers who are able to choose when/if to sell their business (or to realise value via incorporation) the suspense is particularly acute.  As the original proposals stand, different actions taken either before or after April 08 could make the difference between paying just 10% on their capital gains or paying 18%.

The latest contribution to uncertainty came on the 13^th of December when Vincent Cable asked the Chancellor for a statement on what was happening.  In reply, Alistair Darling said he had been consulting many different groups over the pre-budget proposals and wants more time to talk with them.  He then said he anticipated a conclusion of the process “in the new year”.

Paul Morris, director of tax consultancy at Target is clear about the impact the delay is having: “Business owners are facing important decisions and have no firm guidelines on how to proceed.  This sort of uncertainty is not just bad for people who are trying to save tax – business purchases and sales are an important part of the economy and confusion of this sort has a negative effect on confidence.”

The implications of any changes make it is essential to monitor the situation very closely.  Business owners who are likely to be affected are advised to have plans for different eventualities so that if they need to act, they can do so promptly.

• Available from April 08 alongside the new CGT reform program
• A concession to individuals involved in running a “trading” business
• Applies to gains made when disposing of all or part of a business and to disposal of associated assets
• First £1m of qualifying gains made after 5 April 2008 taxed at 10%
• Gains above £1m taxed at 18% 
• Lifetime limit of £1m at 10% rate
• When selling company shares, the relief is available only to ‘officer or employee’ shareholders (holding more than 5% of the shares and votes). This condition must have been met for at least one year before sale.
• As for taper relief, shares need to be in a ‘trading’ company or Group. Significant company investment assets, including cash, may result in the relief being lost.

If you would like to speak to an expert about these changes please email us, request a call back or call 0845 241 3387.