CGT Tax Changes - Deals Or No Deals?

Anyone thinking of selling or passing their business on could lose out on tax relief if the deal goes through after 5th April 2008.

Taper relief, first introduced in 1998, reduced the tax rate on capital gains on shares in trading companies held for more than two years, from 40% to 10%.

But the recent Pre-Budget Report stated that from 6 April 2008, taper relief and indexation allowance will be abolished and in their place Capital Gains Tax for individuals will be payable at a flat rate of 18%.

This was intended to target private equity “fat cats” who are taxed at only 10% compared to the 40% top rate of income tax.

But the change hits many other businesses. Owners of small and medium sized businesses have sacrificed huge amounts of time, effort and money to keep their companies going and for them it is their pension. That is why the IoD, CBI and FSB all lobbied against the changes and why the Government yesterday announced that for business owners who are retiring the first £100,000 of gain will be exempt.

So what should you do if you own a business and want to retire or ease up?


* If you will not make more than £100,000 on a sale then you should probably wait until after next April before selling. But if you qualify for taper and have already negotiated a deal which will make more than £100,000 then you should make sure your deal goes through by next 5th April.

* If you have not yet started that process, then take advice now on whether to bring forward your plans for retirement.

* Do you want to sell or pass it on to the next generation?

* If you want to sell then what is its price and will you have enough to fund your retirement?

* Will you get the best price now?

Most businesses have the odd problem area which affects the price and its attractiveness to a potential purchaser. For example, key employees may not be on proper service contracts, the IP rights are not clear, or the factory does not have a proper lease.

Vendors should take time to put their business into good shape for sale. Selling in two or three years could give time to cut costs and create consistent profit growth year on year so as to attract a better price.

The change in tax will create pressure to tie up deals before the new rules come into effect and no doubt many will burn the midnight oil in the run up to 6 April next year.

Deal or no deal? It’s up to you, but you can always ask your friendly corporate solicitor for advice.


For further information, contact Richard Coombs on 0175 675151 or email richard.coombs@foot-ansteys.co.uk