Another Government climb down but good news for business owners

The government has made a welcome Capital Gains Tax u-turn. They originally proposed in October 2007 a flat rate of 18% for all capital gains.

A new “Entrepreneurs Relief” will apply from 6 April 2008 taxing the first £1 million of gains made by some entrepreneurs on the disposal of a business or shares in a trading company at a rate of 10%.

Detail of the new Entrepreneurs Relief is as follows

• The relief applies a reduction to the gains of 4/9 so that the effective rate of tax is reduced to 10%.
• The relief applies to disposals of trading businesses, shares in a partnership, shares in trading companies and for certain “associated disposals” by individuals of assets used in such businesses etc.
• For share disposals (including Loan Notes and Preference shares) in a trading company, the individual must be director or employee of the company and own at least 5% of the voting rights of the company
• Although this new relief is similar to the old retirement relief provisions, there is no minimum age limit, no restriction for non-trading assets held, provided these do not prejudice the overall trading status. There is a qualifying period of one year’s ownership.
• The £1 million is a lifetime allowance but as we have yet to see the draft legislation it is not clear if the clock starts on 6 April 2008 or whether previous disposals have to be taken into account.
• The relief is also available in some circumstances to trustees.

Please contact Kirkpatrick & Hopes on 0118 923 5800 for advice on your own particular circumstances. If you own less than 5% shares in the company you work for maybe you should consider selling your shares now. This would also apply to other shares you may hold in unquoted trading companies. You need to act now because the changes apply from 6 April 2008.