Capital Gains Tax - a gift from the Chancellor but for how long!
Against all expectations the Chancellor, in his budget of 24th March, provided a welcome tax break to the owners of SME companies who want to sell their companies.He raised the level at which Entrepreneurs’ Relief at 10% of any capital gain applies, from £1 million of gain to the first £2 million of gain. Thereafter standard rate CGT of 18% will apply.
Entrepreneurs’ relief is a once only life time relief. However each qualifying shareholder within a company can benefit from this relief. The immediate effect of the change announced is a tax saving of £80,000 to each qualifying shareholder.
However, it is expected that whichever party forms the next government, a further change to CGT will be introduced by increasing the standard rate. It is widely recognised that CGT is an easy target. At 18% it is lower than income tax and many commentators suggest it could rise to 25% or even to match the top rate of income tax i.e. 50%.
With respect to timing, the Tories have declared they will have a budget within 50 days of the General Election so it is reasonable to assume an increase could be announced at this point with either immediate effect or more probably with effect from 6th April 2011. Should the Labour party win, the Chancellor has announced that he will not have another budget post the election so an announcement to increase CGT would probably come in the Autumn Pre Budget Report with effect from April 2011.
Typically selling a business takes a minimum of six months and often much longer. Therefore, business owners wanting to take advantage of the current standard rate as well as the new entrepreneur’s relief should consider starting the process of selling their companies in the very near future.
For further information, please contact James Robertson at Pace Equity or David Marcussen at Marcussen Consulting:
T: 01491 577889
E: jamesrobertson@paceeuity.com
E: david@marcussen-consulting.com
Email: jamesrobertson@paceequity.com
Tel: 01491 577889