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Nick Scull, Head of Tax

Capital Gains Tax Changes - Threats and Opportunities

The headlines have focussed on the increased rate of tax for the sale of business assets from 10% to 18% after 5 April 2008, but there is a lot more to it than that.

Capital Gains Tax Changes - Key Points

• Business asset taper relief will disappear, but did your investment qualify in the first place?  Ironically, the more successful your company has been, the less likely it is for the shares to have qualified throughout.
• If the gain is on land or buildings, did they qualify for business asset taper relief throughout your ownership?
• How important is the loss of indexation allowance?  In some cases (e.g. agricultural land) this relief will cover all the current gains, so it may be advisable to take steps to secure it before 6 April.
• The annual exemption was effectively worth more with taper relief than without, and this is a major factor on smaller gains.
• Non-higher-rate taxpayers would only have paid tax at a maximum of 20% anyway, and usually much less.
• There has been speculation in the press about a new form of retirement relief on sale of a company to exempt £100,000 of gain, which could mean that you are better off after 5 April after all.  Exactly how it will work has yet to be revealed.  Which disposals will qualify – which assets, held for how long, at what age can you claim, etc?  Will it even come in at all?

What To Do Now

We recommend you should talk to us if you hold any of the following:

• Shares in a private trading company that you hope to sell within the next 10 years.
• Loan notes following the sale of a private trading company.
• A property that is let to a business.
• Any assets owned since before 1998.
• Farmland.
• Land that might increase significantly in value in the reasonably near future, eg on gaining planning consent.
• Shares or share options in your employer company.
• Goodwill in an unincorporated business or partnership.

Fixed Price Review

Because the CGT changes are so significant, we believe that any client with an asset liable to give rise to a capital gain at some point in the future should ask us to review their position.

For a fixed price of £250 (plus VAT) we will provide the following:

• A half-hour meeting with a specialist tax consultant where he can gather all the relevant information about the asset and your plans for it.
• A detailed report setting out your current tax position and your position as it will stand after 5 April 2008.
• An outline of the options available to you to secure the benefits of the current regime and mitigate any potential increase.
• A one-hour debrief meeting with your consultant where you can ask any questions raised by the report or its recommendations, and where you can agree a fully-costed plan of any further steps that should be taken.

Whilst we appreciate the frustrations it may cause, we intend to delay giving any detailed advice to clients on these matters at least until the draft legislation is published, which is expected in December.

Please do contact us in the meantime to register your interest and have the peace of mind of knowing that we will be reviewing your position as soon as we are able.

Have Your Cake and Eat It

We have developed a strategy we are calling RICS to realise the benefit of your taper relief now, without crystallising a tax charge.

The added benefit is it still leaves you able to choose to be taxed under the new regime when the “real” disposal takes place if that gives a lower tax bill. 

We believe that this is almost certainly the most powerful tax planning you can currently take, without resorting to a “tax scheme”.  After all, who knows what the next changes will be?

For example if you hold an asset which currently qualifies for the 10% rate of CGT and want to secure this rate without actually selling to a third party (or at least not yet)?

You might be lucky and find that the existing growth in value would be fully covered with taper and the annual exempt amount of £9,200 (perhaps you have some indexation allowance to use as well).

The basic problem with trying to find a structure to secure taper relief now for larger gains is how to crystallise the taper relief without having the taxman come knocking on your door on 31 January 2009 asking for the tax.

We have developed an innovative and highly robust strategy that we are calling RICS.  Its main features are

• Brilliantly simple planning.
• Full disclosure to the Revenue.
• You are in control of when the tax liability is crystallised, if ever.
• We calculate the tax payable under today’s regime and under the regime as it then stands – you get to choose whichever is the lower.

If you would like to find out more about RICS and other planning ideas, we recommend that you take us up on our offer of a fixed price review, to consider your position and provide a comprehensive report.

How to Wipe Out Your Capital Gains

How does this sound to you?

• Get back the capital gains tax paid on any disposal in the last 3 years.
• Make a capital-protected, liquid investment guaranteed not to fall in value.
• Get a further 20% tax back.
• Invest that and use it to pay an 18% exit charge after a further 3 years.
• Borrowing can be arranged if the proceeds have already been reinvested elsewhere.

Please contact Nick Scull, Head of Tax at nscull@garbutt-elliott.co.uk if you would like to know more.