SUBSTANTIAL
capital gains tax (CGT) changes were announced in the pre-Budget Report.
These are far-reaching changes that will have a significant impact on the amount of tax payable on business sales. There is, however, a window of opportunity until April 2008 to "lock into" existing reliefs and obtain the benefit of a 10 per cent exit rate.
A number of CGT reliefs, including taper relief and indexation allowance, will be withdrawn. All assets held before 31 March, 1982 will be automatically re-based to their market value at that date and the share identification rules will be simplified, along with other minor consequential changes.
A new flat rate of tax for all assets will be introduced at 18 per cent. In the interim, HMRC will discuss details of the proposals with "interested parties".
The issue is relevant to anyone contemplating a sale of their business; anyone who has already sold their business in return for shares or loan notes in the acquiring company; employee shareholders; private equity investors and other shareholders.
The new rules will apply to disposals made on or after 6 April 2008. The current rules continue to apply for disposals made before 6 April 2008.
Those holding shares or other assets which currently qualify for business-asset taper relief are likely to be worse off as the abolition of taper relief increases the minimum rate of tax from an effective 10 per cent (after two years of ownership) to 18 per cent. Where shares have previously been sold in exchange for shares or loan notes in the acquiring company, the 18 per cent rate will also apply where the new shares or loan notes are sold or redeemed on or after 6 April 2008.
Anyone previously holding assets currently treated as non-business assets will be better off as they will be subject to an 18 per cent rate of tax, regardless of how long they have held the asset. The lowest rate was previously 24 per cent, achieved after ten years of ownership.
While changes were anticipated in the context of private equity, the widespread nature of these proposals was unexpected and may impact on the timing of proposed future disposals, with many vendors keen to carry out a disposal before the changes to the rules in April 2008. If a sale is to be accelerated, it will be necessary to begin the process very soon if the deadline is to be achieved.
Where it is not possible to achieve a sale in this timescale, or where a sale has already taken place, it may be possible to implement planning to "lock into" the 10 per cent rate currently available.
• Duncan R Glassey is a partner with Wealthflow LLP and Alan Dick is founder of Forty Two Financial Planning
