Craig Simpson, Tax Partner at Bates Weston is considering whether a Capital Gains Tax hike is on the horizon.
With a general election in 2024 the threat of a change of tax policy always looms large. One area of taxation which often hits the headlines is the rate of Capital Gains Tax (CGT). So should you consider accelerating your business disposal to capture the current rates of taxation?
Some background; The main rate of CGT is 20% for the sale of shares in a trading company. Business Asset Disposal Relief (BADR) reduces the rate to 10% where an individual qualifies for the relief albeit on lifetime gains of £1m.
Back in July 2020 the then Chancellor asked the Office of Tax Simplification to review CGT and to explore the alignment of CGT rates to Income Tax Rates. The report recommended various things which were largely dismissed and to date we have seen no change in the rate of CGT.
With the recent by-election victories for the Labour Party the question of tax manifesto for the next election starts to become more important. Whilst Labour have stated they will not introduce a Wealth Tax, the door is still ajar to increase the CGT rates.
Where politics and reality don’t always follow is that CGT only contributed £16.9bn of the overall tax revenue of £788bn in 2022/23. So it is a relatively modest tax. But then raising VAT on private school fees has even less of an impact but it is still a popular policy amongst labour voters. That is not to say that any political party would increase CGT but clearly it is possible. Considering that Income Tax revenues have increased from £152bn to £246bn in the last 10 years and Corporation Tax revenues are heading towards £100bn, any increases in CGT would squeeze even more from the taxpayer.
So what can you do to protect against an increase in CGT? One solution is to accelerate plans to sell your business. Our Corporate Finance Team are seeing an increase in activity and the market for good quality businesses is as buoyant as ever. This is balanced with achieving the best commercial deal. If you would like to explore this possibility then contact Chris Jones or Nicola Bullock of our Corporate Finance Team.
Good tax planning will also be key. The type of proceeds received in a sale can impact the timing of the disposal for tax purposes. Our tax team are also happy to discuss planning for a capital disposal. Contact Craig Simpson and Richard Coombs.
This guidance is generic in nature and does not constitute advice. You should take no action based upon it without consulting ourselves or your own professional advisor.