Capital Gains Tax - potential changes ahead
Accountants Moore Kingston Smith have just reported upon The Office of Tax Simplication’s report on capital gains tax published last week.
They say that it makes a number of suggestions to the Chancellor, which would fundamentally change the capital gains tax rules in the UK, if he chooses to adopt them.
This clearly signals the direction of travel, as they include aligning the capital gains tax rate with income tax rates, which would dramatically increase the tax due when businesses are sold.
The likelihood of capital gains tax rates going up in the new year is very high.
This would be a major blow to those who have spent long lean years building up their businesses with an eye on the prize of realising the value through some sort of exit event.
It was only in March 2020 that the entrepreneurs’ relief limit was reduced from £10m to £1m with a balance of capital gains tax payable at a rate of 20%.
MKS suggest that if this 20% rate increases to 45% from Budget day then, in a little more than a year, business owners will have seen a fourfold increase in the total tax they will pay when they sell their business.
They conclude their note by stating that "Standing in the shadow of Coronavirus, with Brexit looming, is arguably not the time to panic and rush an attempt to sell your business, and there are many other routes to consider."
MBO's, family succession planning using trusts or even indirect employee ownership, using a tax exempt disposal to an employee ownership trust - these are other ways of lowering tax bills.
However, I would make a strong bet that many of these entrepreneurial businesses will come to the market directly of their own accord or through acquisition by special purpose acquisition vehicles.