Advice & information • Company & commercial

Entrepreneurs' relief lessens burden of Capital Gains Tax rise

The Chancellor’s new rate of Capital Gains Tax has been moderated by a new relief for those selling businesses.

In October 2007, the Chancellor announced that a single flat rate of 18 percent was to be introduced for Capital Gains Tax on all gains made from April 6, 2008. Existing allowances, such as indexation and taper relief, would be abolished, making the Capital Gains Tax system much easier to understand and implement.

However, there were strong objections since it was felt that many people would actually end up worse off. In response, the Chancellor has now announced that, as well as the new 18 percent Capital Gains Tax rate, there will also be a new relief, to be known as Entrepreneur’s Relief. This new relief will also be introduced on April 6, 2008.

THE RELIEF ITSELF

The relief will apply to the first one million pounds of taxable gain arising on a qualifying disposal and will reduce the new 18 percent rate down to 10 percent. Any gain above one million pounds will be taxed at the new 18 percent rate.

In order to qualify, the gain will have to relate to one of the following:

· Sole traders or partners selling their business or an interest in a business

· Sole traders or partners whose business ceased within the last three years and who are selling assets which were formerly used in that business.

· Directors and employees selling shares in a trading company of which they own at least 5 percent of the ordinary share capital and were able to exercise at least 5 percent of the voting rights.

· Directors and employees disposing of assets used in a company for the sale of shares in which would have qualified for the new relief.

· Trustees selling assets used in a business, or shares in a trading company, where a beneficiary of the Trust who had a right to the income of the Trust is involved in carrying on the business either as a sole trader or a partner, or as an officer employee of the company. Specific businesses excluded from the new relief will be property letting businesses or other furnished holiday letting businesses.

FURTHER INFORMATION

The draft legislation itself has not been released but a further bulletin will be posted on our website as soon as such is available.

If you require any further assistance in the meantime, please do not hesitate to contact Stephen Forsey or any other member of our private client team.