18 December 2020
Tax saving options available now if you sell your business
The Chancellor has set 3 March 2021 as the date for the next budget. However, allies of Rishi Sunak have said that it could be replaced with an emergency statement, which happened last Autumn. This has not been confirmed by the Government, so now could be a good time for you to accelerate your exit plans to sell or wind up your businesses tax effectively under the current comparatively low CGT rates and with the benefit of the current reliefs available.
Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief) is a capital gains tax (CGT) relief which was first introduced in April 2008. It allows business owners who meet the qualification criteria to pay a lower CGT rate of 10% when selling their business, compared with the usual CGT rate, which is currently 20% for higher-rate taxpayers.
In the 2020 budget the Chancellor, Rishi Sunak, announced reforms to the relief, capping the lifetime amount of gain for which an individual can claim relief at £1 million (previously it was £10 million).
Even after that reduction, a higher rate tax payer selling “qualifying assets,” which are typically limited company shares held by an employee or director for longer than two years and representing more than 5% of the total share capital of the company, could save up to £100,000 of tax (compared with a sale without the benefit of the relief at current tax rates).
In addition to company sales, the same relief can often be claimed on capital distributions made on solvent liquidations of limited companies.
If the Spring budget does go ahead, financial commentators have said there is likely to be a shake-up of tax rules to raise funds for the Government to help pay for the cost of Covid-19. This could involve increases in tax rates and the withdrawal or reduction in scope of available tax reliefs, with capital gains tax rates and Business Asset Disposal Relief potentially in the firing line.
The cancellation of the Autumn budget gave business owners a little breathing space, but with the Spring budget still in the pipeline, now is the time to review your options before 3 March 2021.
Alex Zachary, a Partner and Head of the Corporate & Commercial practice group at B P Collins, can advise on selling your business this side of the budget. For further information email firstname.lastname@example.org or call 01753 279022.