Business advice from North West Chartered Accountants, Wilson Henry LLP; Business Quiz.
Q I AM in the process of selling my business and understand that a 10% Capital Gains Tax rate will now be charged on the profit that I make, instead of the 18% tax rate that the Chancellor first announced. Is this correct?
A FOLLOWING a significant amount of pressure from both businesses and professional bodies, the Chancellor has now offered a reduced charge of 10% to capital gains tax (CGT) for gains realised on the disposal of certain businesses after April 5, 2008. This reduced rate has been called "Entrepreneurs' Relief".
The relief will take effect from April 6, 2008, and will run alongside the CGT reform programme that was announced last December.
In a nutshell, all capital gains, with the exception of gains on the disposal of certain business assets, will be taxable at a flat rate of 18% from April 6, 2008, as announced last December. The tax-free annual exempt amount (currently pounds 9,200) will remain, but taper relief and indexation allowance will no longer be available.
The new Entrepreneurs' Relief will apply to (1) gains made on the sale of all or part of a trading business (but not including a property letting business other than furnished holiday lets) that is carried on by an individual, either alone or in partnership; (2) gains made on the disposal of shares in a trading company provided that the individual making the disposal has been an officer/employee of the company, or of a company in the same group, and owns at least 5% of the voting ordinary share capital in that company.
The first pounds 1m of gains that qualify for Entrepreneurs' Relief will be taxed at an effective flat rate of 10%. Gains in excess of pounds 1m will be taxed at 18%. It should be borne in mind that the pounds 1m is a lifetime limit, so it will be possible for an individual to make a series of qualifying gains at the 10% rate as long as the cumulative total does not exceed pounds 1m.
The new relief is based broadly on the now extinct retirement relief. Unlike retirement relief, however, there will be no minimum age limit and individuals will qualify if the relevant conditions are met for just one year (the qualifying period for retirement relief was 10 years).
If, however, you wish to sell business assets that have appreciated in value since purchase, you should certainly consider selling if possible before April 6, 2008, in order to utilise the existing indexation and taper reliefs and ensure that the full gain would benefit from the current effective 10% tax rate.
This column is brought to you by Wilson Henry LLP - supporting a Culture of Capital for 50 years.
Keep in mind that pounds 1m is a lifetime limit
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|Publication:||Liverpool Echo (Liverpool, England)|
|Date:||Feb 25, 2008|
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