Latest CGT announcement – have you been thrown a lifeline?

Nick Scull Head of Tax

The North has a large number of family businesses who were facing a jump in their tax rate from 10% to 18% on a sale of the business, following Alistair Darling's announcement in October last year to scrap so-called taper relief. 

On 24th January he gave in to pressure and reintroduced a 10% rate, but only for gains up to £1 million.  On the face of it a great many people who might have suffered under the changes will now be protected from them.

Unfortunately, those who own family businesses, estimated at 70% of the North’s commercial sector, are more likely than others to find that they are not spared the tax hike after all.

Family members who have helped fund a company will be disadvantaged unless they also work for the company and own more than 5% of the shares.  Technology companies, are particularly likely to be hit, often having turned to family for funding where banks were reluctant to lend.

Craig Manson, Director, said "Many local family businesses have shareholders who are not involved in the business from day to day, but now they will be looking for a seat on the Board in order to secure their entitlement to 10% tax.  That might not suit all parties suddenly to have all the family at a Board meeting."

The commercial property sector is also exposed to the full cost of the new 18% rate.  Those letting to family businesses were also able to get the 10% rate with taper relief and will find no sanctuary in today's announcement.

So the morale of the story appears to be - don't just assume that you have been thrown a lifeline.   Many business owners will be able to breath a sigh of relief, but equally many will not.  In most cases there is still significant scope to undertake planning now to protect taxpayers from the changes, and anyone concerned about their position should contact us straight away.