CGT reform: Relieve me, I'm an entrepreneur. By Simon Sweetman

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All things considered, Simon Sweetman is quite pleased that the Chancellor has changed his mind about CGT

The Chancellor has bowed to public pressure and added an entrepreneurs relief to his CGT proposals. My main quibble is that entrepreneurs relief sounds like something that happens in a massage parlour, and advocates of tax simplification will note that this adds about 8 pages of legislation, and we really cant blame HMRC or the government for this. Reliefs equal complexity.

So the first 1 million of gains on loosely the sale of a business or shares in a business will be taxed at 10% instead of 18% (well, strictly speaking no : the gain is reduced by 4/9 before being taxed, which is better for small disposals and not so good for larger ones). This applies to:

  • The disposal...

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By Anonymous
05th Feb 2008 15:14

Thank You
Rebecca, thank you for your clarity.

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04th Feb 2008 21:07

You may want to go now
There will be no taper relief, and the new entrepreneurs' relief is only available on assets where either the business has ceased or the business has been sold and the asset was owned by a partner or shareholder who has disposed of his interest (the old fashioned associated disposal rule). So no relief for the sale of a property used in the business which continues. Although roll over relief may be available to mitigate some of the gain if you are trading down.

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By Anonymous
04th Feb 2008 16:56

Sale of business asset
Can someone clarify what the position will be after 5th April 2008 for sale of business asset, but no sale of business? I have a specific situation where client had planned to sell, what is due to become, surplus (smaller) buildings (not sale of a part of the business).

May have to consider whether there is a need to crystallise a gain prior to 5th April.

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By NeilW
27th Jan 2008 19:23

But ulitimately foolish
The only fair system is to implement CGT for individuals as it is for companies. Indexation and then taxed at marginal rate. Any other system is open to shifting.

I can think of two belters not including the 'Holiday in sunny Suburbia before I sell my BTL' one that is doing the rounds at the moment.

Will they never learn.

NeilW

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25th Jan 2008 15:14

Fully compensates for loss of taper? I think not
"This fully compensates small businesses (as I understand small business) and to some extent the legendary serial entrepreneurs for the loss of business taper relief after 5 April."

Allow me to differ. I'm not convinced that the newly-announced "entrepreneur relief" does "fully compensate" for the loss of taper. The assertion that it does is dependent on the unstated assumption that there is no annual exemption available.

Take a pre-5 April 2008 example. Gains are £36,800. Taper removes 75% of this from charge, leaving £9,200 which is entirely covered by exemption.

Post-5 April 2008: Gains again £36,800. Entrepreneur relief removes 4/9 of this from charge, leaving £20,444. After exemption (assume same as before), we have £11,244 taxable at 18%.

So, an entrepreneur with relatively minor gains sees a nil tax liability rise to over £2,000 while supposedly facing the same "effective" 10% rate of tax....

Virtually all the debate on the proposed 18% rate, and now the entrepreneurs' 10% rate, has ignored the effect of the exemption.

This is surely wrong, as in my experience very few clients will not have an exemption available against sales of business assets. After all, where else would they use it? For most individuals other than buy-to-let landlords, the only thing they ever sell which ends up subject to CGT is their business. What are the alternatives: cars (exempt); home (exempt); chattels (exempt); quoted shares (in the ISA).... In my view, every comparison of CGT regimes for the disposal of shares should take account of the effect of the exemption, and on that basis none of the alternatives prove to be as favourable as business asset taper.

On a related subject, what about shareholdings split between husband and wife? It's not clear from the information out so far, but it looks as though a shareholding spouse who doesn't work in the company would qualify for the £1M relief. Which further skews this new measure away from fully restoring the benefits of taper...

To conclude, the headlines sound good, but the removal of taper is still a blow to the entrepreneur, and disproportionately so for ones with relatively small levels of gain.

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