CGT Review: Last chance to sell your business?
The charge to Capital Gains Tax (CGT) arises when a person disposes of an asset (i.e. businesses, investments, shares in companies etc.) and makes a profit on the disposal that is capital in nature.
A formal review of the Capital Gains Tax was commissioned by the Chancellor, Rishi Sunak, last year and the Office of Tax Simplification (OTS) published its report on 11 November 2020, setting out recommendations for reform. The OTS stated that an additional £14 billion a year could be raised if CGT rates were aligned with income tax rates.
If any changes are to be implemented with regards to the CGT rates, these will be introduced in the next Budget, which is due to be announced on 3 March 2021. During the months following the OTS report, there has been speculation that CGT rates will go up in the next Budget. This is likely to significantly affect business owners selling their businesses, as well as business re-organisations, inter alia.
If the CGT rates increase, what may the level of increase be?
If the CGT rates were to be aligned with the income tax rates, the top rate of CGT would be pushed to 45% (the current income tax rate for additional rate taxpayers), depending on the applicable taxable band. Alignment of CGT rates with income tax rates remains a possibility, however, the CGT rates may go up by a smaller amount.
Any changes that will be announced in the Budget may or may not come with a transitional period, meaning that they may be effective from the date of the Budget or from the date of the new tax year. Anti – forestalling rules may be introduced in the Budget and business owners planning a share sale or a business re-organisation need to bear this in mind, as their transactions may be affected by any such rules.
If you are thinking of selling your business, we suggest that you carefully consider your options with regard to any potential changes to the CGT rules and ensure that you take expert tax advice.
Our business services team have extensive knowledge and experience in dealing with business sales. To get in touch, please contact our business services team on 01202 525333 or email our business services partner, Neil Cook at firstname.lastname@example.org