Insights

I wrote this article for the EBA blog and thought I would post it now because it's attracted some comments....a great tax planning opportunity for some....so read on if you are a business owner.....

There weren’t many announcements in last month’s Budget that we didn’t already know about, especially if you are one of those affected by the 50% tax rates. But there was one rather nice surprise in the form of doubled entrepreneurs’ relief.

Aside from the previously announced NI increase or so called “jobs tax”, one of the other controversial changes made by this Government was, in 2008, to abolish the taper relief previously introduced as an incentive for entrepreneurs. When entrepreneur’s relief was announced as a replacement, the £1m was considered rather a paltry amount. So, when in last month’s Budget, the lifetime limit on gains qualifying for entrepreneurs’ relief was increased from £1 million to £2 million for disposals made on or after 6 April 2010, it was welcomed as a positive measure.

This is especially true because it has been largely considered to be a vulnerable relief, and, in fact, most advisers anticipated wider changes to capital gains tax to better reflect income tax rates in the Budget. But this didn’t happen.

In view of this, many business owners will be seeking to trigger capital gains in order to utilise this relief sooner rather than later. And those who have already utilised the relief to its previous limit of £1m may have an opportunity to take a second bite of the cherry.

Whilst the outright sale of a business or company shares is the obvious way in which to trigger a qualifying capital gain, other things to consider are as follows:

• Incorporation of non-incorporated businesses – this may trigger a capital gain following the valuation of the goodwill of the business and subsequently, depending on taxation rates involved, could also provide a more flexible and beneficial means of managing personal income levels in the future;
• Sale of a number of shares or the granting of EMI options over personally held shares;
• Inheritance tax planning by considering gifting shares.

However it is important that steps are taken quickly to secure any tax planning opportunities that have arisen following this legislation. Should there be a change of Government after May 6th,, any capital gains tax related tax relief may be subject to change.”