Business Asset Disposal Relief could also be axed

You might not have to imagine for long but imagine it’s the first days of a new government – with a new mandate and the energy to implement it. 

New MP’s have been sworn in; Ministers and their juniors appointed and will have already begun work helping the new Chancellor Rachel Reeves build her flagship first budget likely to take place in September or October. 

As a director of a solvent & successful business, if you weren’t already thinking about what this means financially for you then you need to consider what the likely changes will be. 

We’ve already written about what each of the main parties had promised business in their manifestos but the proof of any pudding is in the eating.

So what is on the menu?

Every new government looks to make an early impact and in the case of the first female Chancellor, she will absolutely be looking to make some important changes that will undoubtedly impact businesses – some positively, but also some negatively depending on their sector and situation. 

This applies especially if you’re a director considering closing your solvent business through a Members’ Voluntary Liquidation (MVL) and taking advantage of the tax saving opportunities this offers. 

What’s the plan? 

Labour’s manifesto gave assurances that income tax, national insurance, corporation tax and VAT would not be raised – at least for the first half of the parliament.

So what does this leave?

It’s striking that there was no mention or denials about potential rises to Capital Gains Tax (CGT) so it’s likely that it could be increased in the Autumn budget. 

Along with any rise to the headline rate, there’s also been no mention of protecting or prolonging Business Asset Disposal Relief (BADR), the successor to Entrepreneurs’ Relief, which now must be considered as being more vulnerable than at any time since its introduction. 

BADR reduces capital gains tax on the disposals of businesses or business assets from 20% to 10% which is beneficial to directors closing their business and realising their assets but costs the Treasury millions of pounds to support. 

A new government that has stated at every opportunity it will look to close loopholes and pursue waste could find raising CGT and eliminating BADR too tempting a target, especially with a public that will be fine with anything that doesn’t raise their personal taxes.

Axe the tax break?

The National Audit Office has found that there are currently 341 active tax breaks in legislation designed to promote economic growth. 

One reason why CGT and BADR could be under threat is that people living abroad (non-doms) can avoid CGT on their UK investments.

Most countries impose a “withholding” tax on dividends which applies a 20% blanket charge unless the investor can show they have already paid that tax or equivalent in another country.  For instance, a Cayman Island resident would pay tax on their German investments but would be exempt on those made in the UK. 

It could easily be scrapped on the basis that most other countries apply it and only people resident abroad would benefit.

Another tax break that could be argued hasn’t achieved its aim was the scheme aimed to promote investment in research and technology by smaller companies. 

It’s one of the most generous available as it allows businesses who qualify to write off 186% of the value of any investment against corporation tax. 

Between 2013/14 and 2021/22 the cost to the Treasury increased by 575% to £4.76 billion.  

A belated crackdown on fraud by HMRC reduced the subsidy’s cost in the last year but HMRC cannot show if the tax break has actually encouraged any R&D by small firms. 

Rachel Reeves has already said that if she is appointed Chancellor then she will ramp up HMRC’s resources to tackle fraud and avoidance schemes. 

She would begin her term by cancelling some tax breaks for wealthy individuals and linking the savings specifically to paying for extra teachers and towards reductions in health service waiting lists.  

A panel including former Treasury official Sir Edward Troup is already advising her on potential next steps which could include cancelling CGT altogether which would save the Treasury billions of pounds but will mean that directors and business owners looking to close their businesses will have to act quickly before any of these ideas can be implemented.

So if you’re considering closing your business through an MVL then you’ve literally only got a few weeks to act before the budget is officially announced and any adverse tax or other financial changes are implemented.

Taking expert advice is a policy we’ll always back and we’ll have some good options and ideas to discuss once you arrange your free consultation

One of our experienced advisors will be able to assist you on choosing the most appropriate and beneficial financial and asset realisation options available to you right now but act quickly – they will almost certainly change after any budget is announced.