What this could mean for your business
For many directors and business owners, all eyes will be on the Chancellor’s Autumn spending statement announced this week with several measures expected to be announced that will impact both their company’s and potentially their personal finances.
One potential change that has been highlighted could be a rise in the headline rate of capital gains tax (CGT) which is currently between 10% and 20% for higher rate taxpayers on disposed assets which rises to 28% if the asset is a property.
A series of high profile interventions against this began with a rare statement against the move from former Business Secretary Jacob Rees-Mogg.
He said: “CGT is an inefficient tax where people simply delay transactions when it is too high.
“Increasing it is, therefore, economically inefficient and leads to the poor allocation of capital. This weakens economic growth.
“There would be a risk to the property market, already affected by rising interest rates, of any change to CGT as landlords may seek to leave the market.“
The speculation is that the chancellor will target entrepreneurs through the measure by looking at changes to the headline rate, reliefs and allowances while possibly increasing dividend taxes as well.
If the £2,000 tax free allowance on dividend income is targeted for a reduction of 50% as an example, then 4.3 million taxpayers who earn income this way will either face higher bills or would become eligible for dividend tax for the first time.
A report by the Office of Tax Simplification (OTS) in 2020 said that if CGT was aligned with income tax rates then this could raise as much as £14 billion for the Treasury but the real revenue generated would actually be lower because any changes would impact the behaviour of directors and taxpayers as a result.
Bill Dodwell, tax director of the OTS, said of the report: “If the government considers the simplification priority is to reduce distortions to behaviour, it should consider either more closely aligning capital gain tax rates with income tax rates, or addressing boundary issues as between capital gains tax and income tax.”
Any changes could also directly impact Business Asset Disposal Relief (BADR) formerly known as Entrepreneurs Relief which allows directors beneficial tax arrangements on the assets their company owns in solvent liquidations.
Chris Horner, Insolvency Director with BusinessRescueExpert said: “The OTS report would give a chancellor pause for thought regarding CGT changes in normal economic circumstances.
“When it comes to raising money to fill financial black holes and rebuild a post-Covid economy then it becomes a necessity.
“The OTS report not only recommends increasing CGT and effectively doubling the current rates but that are clear recommendations aimed at restricting directors ability to claim BADR – which is one of the main benefits derived from a Members Voluntary Liquidation (MVL).
“These include implementing a minimum shareholding requirement of 25% to qualify; increasing a minimum holding period before relief can be claimed possibly as long as ten years and even bringing in a requirement that any beneficiary should be close to retirement age before they could claim.
“Any or all of these changes being implemented would have a significant effect on the ability of directors and owners to benefit from MVLs in the same way they could today.
“Although the earliest any changes could realistically be implemented would be April 2023, this would still create a narrowing window for anybody considering a Members Voluntary Liquidation to take advantage of BADR.
“Public comments and interventions from former cabinet members are the clearest sign yet that changes are coming and the best way to avoid losing the opportunity is to start the MVL process sooner rather than later.
“It’s unlikely but the actual changes might be even tougher on entrepreneurs so why risk it?”
What can you do before any decisions are made?
Any changes to Capital Gains Tax won’t just impact directors and business owners looking to efficiently liquidate their businesses but also potentially other shareholders and landlords too.
If the prospect of paying double the amount of tax is worrying – as it should be – then they will surely be considering their portfolios and positions.
The only way to assert some certainty is to take control of the process and begin it before the chancellor or anybody else can have their say.
We can begin to work through your ideas and plans with you, let you know exactly what the current state-of-play is and what you can expect from any procedure you embark on.
Beginning an MVL or any other procedure this year will in all probability see it completed before any changes take place so even more reason to get in touch.