Tax Radar - CGT Entrepreneurs relief

Capital Gains Tax - Entrepreneurs Relief

There is the possibility that the CGT entrepreneurs relief (ER) could come under the spotlight in the budget next month.  

The Conservative Party manifesto stated: 

‘We also have to recognise that some tax measures haven’t fully delivered on their objectives. So we will review and reform entrepreneurs’ relief.’  

It is worth noting however, that over the whole existence of capital gains tax there has always been some sort of special treatment for business disposals – first there was retirement relief, then taper relief and now entrepreneurs’ relief – and so it would be a major surprise if the outcome of this latest review was the complete abolition of any relief. There is a strong body of opinion supporting the view for the need for reform, but we just don’t know what that reform might look like, or indeed whether anti-forestalling rules might operate in order to negate the benefits of pre budget transactions.

Making commercial decisions around possible tax changes is never easy; crystallising a tax liability that might not otherwise accrue and accelerating the point at which tax is paid should not be undertaken lightly, but completing a transaction just before a change (as opposed to just after) will generate known tax costs, and potentially a tax saving.

There are a number of ways in which a disposal could be implemented before the budget in order to take advantage of entrepreneurs relief, and the available options need to be considered in the round as there will usually be wider individual implications to the various options outlined below. Without a crystal ball, it is impossible to know with certainty what the right course of action is, but some mechanisms that you could consider are:

  • A gift of shares (the issue being who to)
  • A gift of shares into a trust
  • A restructure in a way that the normal re-organisation reliefs are not available/claimed
  • A solvent liquidation

It is therefore important to note that if steps are taken to trigger a gain (that will be subject be to ER) in advance of the budget, the full implications of these steps (whether that includes ultimate sale proceeds or not) need to be considered carefully before any action is taken.

If you are interested in exploring how you could potentially trigger a disposal now and lock in the current tax rates and benefit of Entrepreneurs’ Relief please contact our Tax Director, Mary Tierney.