Thinking of selling your company? - Act now to avoid 80% tax increase
On 9th October 2007, the Chancellor of the Exchequer, Alistair Darling, used his pre-budget statement to announce major changes to capital gains tax (CGT). Those who own shares in unquoted trading companies have been hit hard. They will now potentially face an effective tax increase of 80% when they come to sell their shares.
Abolition of “taper relief”
Under the current rules, individuals are charged CGT at a rate equivalent to the highest rate of income tax they pay, which in most cases will be 40%. However, since 1998 individuals who sell their shares in unquoted trading companies have benefited from “taper relief” which has the effect of reducing the amount of tax they pay to just 10% provided they have held their shares for two years or more.
On 9th October 2007, the Chancellor announced that the current rules will be scrapped from 6th April 2008, and that a new flat rate of CGT will be introduced at 18%. As part of these changes taper relief is to be abolished. This will have the effect of almost doubling the amount of tax that shareholders in unquoted trading companies must pay on disposal.
New rates introduced on 6th April 2008
The new changes do not come into effect until after the end of the current tax year. As a consequence, share sales that take place prior to 6th April 2008 will still potentially benefit from the lower 10% charge to CGT.
Consequently, if you are currently considering selling your company or your shares, there is now a very clear incentive to explore the possibilities further and to speak to your professional advisers particularly if there is a possibility the disposal might complete before 6th April 2008.
Similarly, if you are looking to make an acquisition, it is worth remembering that whilst you will not being paying CGT on the purchase, the individual(s) you are buying from will. Accordingly, any offer you make to them now that completes prior to 6th April 2008, will result in the sellers walking away with a further net 8% of the price they would get from exactly the same offer, if the deal completed after 5th April 2008.
What to do next
The company department at Denison Till has a well established reputation in handling share acquisitions and disposals. If you would like to discuss any of these issues, please contact Andrew Lindsay or Martin Frost on 01904 611411.
