The Office of Tax Simplification released their first report last week regarding the review of Capital Gains Tax (“CGT”) which was commissioned by Rishi Sunak earlier this year. The proposals made within the report are concerning to entrepreneurs who have yet to realise their value from their companies. These proposals include:
- The alignment of CGT rates (currently 10/20%) to income tax rates (20/40/45%)
- Potential removal of Business Asset Disposal Relief (formerly Entrepreneurs Relief
- A reduction in the Annual Exempt Amount (£12,300 in 2020/21)
- Review whether Capital Gains Uplifts should be removed on death
Having cancelled the Autumn Statement earlier this year, a welcomed sense of relief by business owners looking to sell was felt in the entrepreneur community. However, as we previously highlighted, and as this report confirms, this respite is only likely to be a small window which could end as soon as the Spring Budget in March 2021.
If the Government is, as expected, to announce an alignment of CGT rates with income tax rates, this could mean that shareholders selling a business would be taxed up to 45% for a disposal rather than at the current rates of up to 20%.
Consequently, business owners may only have the benefit of a few more months to take advantage of one of the lowest tax regimes entrepreneurs and business owners have ever enjoyed.
Therefore, if you are contemplating a transaction in the short to medium term, whether it is a full or partial exit, there is a strong case to investigate bringing this forward and concluding a transaction within the current tax regime in advance of the next Budget. If you are in this situation, given the typical time taken to complete a transaction, we strongly advise acting now.
Please feel free to get in contact with us on 01491 579740 to discuss your particular circumstances. We would be delighted to help you.