Budget 2010 giveaway!
For a decade business people became accustomed to the notion that Capital Gains Tax (CGT) paid on a sale of a trading business or of shares in their family trading company would be at the relatively modest rate of 10 per cent.
But in early 2008 Alistair Darling used his first Budget to try to reform CGT by abolishing the taper relief that produced this effective 10 per cent rate and introducing a fixed 18 per cent tax rate.
Only at the eleventh hour, and after much vociferous protest, did he relent and with some reluctance introduce a limited relief, known as Entrepreneur Relief, which reinstated the 10 per cent rate. Entrepreneur Relief was, however, restricted by reference to a lifetime limit of £1m of qualifying gains.
The Chancellor has now used his most recent Budget to announce that, with effect from 6th April 2010, the lifetime limit is to be doubled to £2m of qualifying gains. That represents a doubling of the maximum potential tax saving from £80,000 to £160,000.
Business people must therefore consider their positions to ensure that they either qualify for the Relief or that opportunities to maximise the benefit from the Relief are seized.
In terms of a typical family trading company, the basic requirements are to hold a qualifying number of shares for at least 12 months, and to be a director or employee.
Despite the relatively routine nature of these requirements, it’s all too easy to assume that they will almost automatically apply.
We have encountered instances where a senior generation who have retired from the business and hold otherwise qualifying shareholdings, are no longer directors or employees and therefore do not qualify.
At the other end of the scale there is a younger generation actively involved in the business but not holding the qualifying shareholding and again therefore failing to qualify.
These are relatively simple issues to address if identified in good time but failure to do so could, in the extreme, cost £160,000 per head in additional tax on a sale.
Where shareholdings are held in trust for the benefit of family members, those individuals can pass their entitlement to the Relief, in whole or in part, to the trustees so that the rate of tax paid by the trustees on a sale is similarly reduced.
Here again it is important to ensure that the detail is addressed and that the family members involved have both a qualifying interest in the company and in the trust.
One final point to consider is that the qualifying requirements are quite readily amenable to being shared across members of the family - so with sufficient planning the availability and benefit of the Relief can be multiplied across several members of the family.
Will Campbell, tax partner at accountants and business advisors Beever and Struthers inc Waterworths.