With some potential changes to the regime that may be coming into force, we post this to hopefully give you some time to plan for such changes should they affect you.
We expect the Government is planning to increase tax revenues in response to the significant funding of its Covid-19 response and now that the UK public debt has exceeded two trillion pounds. Some of the recommendations released include simplifying the CGT regime and potentially increasing CGT rates.
The recommendations include
Aligning CGT rates with income tax rates; Taxing accumulated retained earnings in smaller companies at income tax rates; Reducing the annual exempt amount; Removing the CGT uplift on death; and Replacing Business Asset Disposal Relief (formerly Entrepreneur’s Relief which taxes gains at 10%) with a relief focusing on retirement.This could mean that when selling your business, buy to let property, or shares held outside a pension or ISA, rather than paying CGT rates of 10% – 28%, you could end up paying income tax rates of 20% – 45%, resulting in a substantial increase in your tax liability.
The exact changes to CGT are unknown at this time but we know that any changes could be applied before 6 April 2021. If you are planning any substantial capital transactions in the short term it would be prudent to speak with us to discuss if specialised tax planning could mitigate the risks that these changes may bring.
The ways of reducing your overall CGT could be:
Taking advantage of the current CGT rates by bringing forward a disposal. For instance, if there is a commercial reason to do so, changing the structure of your business now rather than waiting (i.e group restructure or incorporation); Considering offshore structures for holding retained profits and/or other investments; Using family investment companies; Considering the use of Employee Ownership Trusts; disposal of shares may be exempt from CGT; Transferring assets to your spouse before a disposal; Capital losses planning; Staggering disposals to use up annual exemptions in different tax years; Deferring capital gains using EIS investments (perhaps only after the new changes come into force) or exempting gains using SEIS investments; or If possible, delaying disposals if the CGT rates equal the income tax rates in order to try and take advantage of lower rates in the future.
