Capital Gains Tax (CGT) Reforms
As we await the Budget, still scheduled for 3 March 2021, speculation continues in the press as to whether it will bring a rise in tax and in particular Capital Gains Tax (CGT).
CGT is currently paid at a rate of 20% by higher rate taxpayers on most gains but can be reduced by various reliefs such as Entrepreneurs Relief (which allows business owners to take the first £1 million of gains at a CGT rate of 10%). A recent Treasury report recommended aligning the CGT rates with the Income Tax rates including top rates of 40-45%, a shift that would take us back to the position in early 2000s when the rates were much more closely aligned.
The Chancellor, whose first priority will be to boost the economic recovery following its devastation due to the pandemic, has limited options when it comes to tax rises as the Government has pledged not to increase Income Tax, VAT or National Insurance Contributions in this parliament. Sunak is said not to favour a wealth tax so that leaves Inheritance Tax and CGT firmly in his sights for reform to raise revenue and commentators believe that when it comes to CGT reforms the question is ‘when’ and not ‘if’.
A Treasury Select Committee has been tasked with examining “Tax after coronavirus” and is set to report its findings before the budget in March. Commentators have speculated whether these will include an increase in the rates of CGT or an abolition of reliefs including the valuable Entrepreneurs Relief.
What does this mean for business owners?
Business owners, especially those considering their exit strategy, will be keen to understand what any reforms mean to them in terms of selling their business or transferring equity to employees via an employee trust and other recognised schemes.
The Federation of Small Businesses recently urged the Government to help create an employee ownership revolution to alleviate the debt burden faced by businesses as a result of the pandemic. Its radical proposals included assigning a business’s debt from coronavirus bounceback loans to employee ownership trusts in return for the granting of preference shares in the company to such trusts. So far there has been no Government response to these proposals.
Whatever the outcome of the Budget it is clear that many businesses are carrying a significant level of debt as a result of the pandemic and will need to think carefully about the best structure for them to allow them to survive and prosper in the future.
If you are considering what’s next for your business and you are looking at ways to extract capital in a tax efficient manner, please get in touch.
Linked Article: Is Employee Ownership Trust (EOT) an option for your business?
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