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• How well is your business performing when compared to
other, similar businesses?
• Is your business running at, or near, its full potential?
Considering capital gains tax
Taxes are perhaps one of the less welcome aspects of a
business person’s life. When you raise that final sales invoice
and realise the proceeds from the sale of your business, you
should be completing one of the last steps in a strategy aimed
at maximising the net return by minimising the capital gains tax
(CGT) on sale.
As a basic rule, CGT is charged on the difference between what
you paid for an asset and what you receive when you sell it,
less your annual CGT exemption if this has not been set against
other gains. There are several other provisions, which may also
need to be factored into the calculation of any CGT liability.
CGT reliefs can reduce a 20% CGT bill significantly. To maximise
your net proceeds it is vital that you consult with us about the
timing of a sale, and the CGT reliefs and exemptions to which
you might be entitled.
Calculating your CGT liability
The taxable gain is measured simply by comparing net proceeds
with total cost (including costs of acquisition and enhancement
expenditure). The rate of tax depends on your overall income
and gains position for 2018/19. Gains will be taxed at 10%
to the extent that your taxable income and gains fall within
the upper limit of the income tax basic rate band and 20%
thereafter. These CGT rates are increased to 18% and 28% for
carried interest and gains on residential property.
A special tax relief, Entrepreneurs’ Relief, is available for those
in business, which may reduce the tax rate on the first £10m
of qualifying lifetime gains to 10%. Generally, the relief will
be available to individuals on the disposal (after at least one
complete qualifying year) of:
• all or part of a trading business carried on alone or in
partnership
• the assets of a trading business after cessation
• shares in the individual’s ‘personal’ trading company
Your next steps: contact us to discuss…
•
Getting your business ready for sale and minimising
the tax due
•
Identifying successors within the business
•
Exploring possible purchasers
•
Valuing your business
•
Timing the sale and maximising the sale price
•
Planning your transition to your next venture
•
Providing for a transfer of your business interests at
your death or if you become incapacitated
• assets owned by the individual used by the individual’s
personal trading company or trading partnership where the
disposal is associated with a qualifying disposal of shares or
partnership interest.
All planned transactions require careful scrutiny to ensure that
the available Entrepreneurs’ Relief is maximised. Remember to
keep us in the picture – we are best placed to help and advise if
you involve us at an early stage. Investors’ Relief also provides a
10% rate with a lifetime limit of £10 million for each individual.
The main beneficiaries of this relief are external investors in
unquoted trading companies.
CGT and non-residents
CGT is normally only chargeable where the taxpayer is resident
in the UK in the tax year the gain arose, although the provisions
of any double taxation treaty need to be checked. CGT may
be avoided, provided the taxpayer becomes non-UK resident
before the disposal and remains non-resident for tax purposes
for five complete tax years.
CGT and death
There is no liability to CGT on any asset appreciation at your
death.
Inheritance tax (IHT) and your business
Lifetime transfers
– For the business owner, the vital elements
in the IHT regime are the reliefs on business and agricultural
property (up to 100%), which continue to afford exemption on
the transfer of qualifying property, or a qualifying shareholding.
Transfers on your death
– Remember to take into account
your business interests when you draw up your Will. While
reliefs may mean that there is little or no IHT to pay on your
death, your Will is your route to directing the value of your
business to your chosen heir(s) unless the disposition of your
business interest on your death is covered by your partnership
or shareholders’ agreement.