A new day dawns
The proposals which shocked the business world in November have been largely confirmed in the Budget, together with the introduction of Entrepreneur’s Relief concession announced in January.
The system of taper relief (introduced by Gordon Brown in 1998) and indexation allowance have been abolished for all disposals after 5 April. In its place will be a flat rate 18% capital gains tax.
The new Entrepreneur’s Relief will be introduced, key points of which are:
• It will tax the first £1m of gains on the disposal of certain assets at 10%;
• The £1m threshold is a lifetime allowance, which can therefore apply across a number of years (provided of course that there are gains in more than one year);
• Disposals prior to 6 April 2008 will not erode the £1m – in other words it is a new ‘clean sheet’ tax relief;
• The relief can be claimed by trustees where a qualifying beneficiary has a qualifying interest, provided that both the trustees and the beneficiary jointly agree. In this circumstances, gains relieved by the trustees count against the gains of the individual.
Importantly, unlike the old Retirement Relief, there is no minimum age for such disposals to be made.
Assets which qualify for the relief are:
• The whole or part of a qualifying business carried out by an individual as a sole trade, or of his or her interest in a partnership. A qualifying business is one carried out as a trade, profession or vocation, including the commercial letting of furnished holiday accommodation. It must have been owned for a year prior to the disposal.
• The assets used by a sole trade or partnership (assuming the same qualifying criteria as above) which ceases and where the assets used in that business are disposed of in three years
• Shares and securities in a trading company (or holding company of a trading group) where the individual making the disposal has owned the shares for a year and where the individual is both an officer/employee of the company and holds at least a 5% stake in the company
• Assets used in a qualifying partnership and/or company where asset is separately disposed at or around the same time that the interest in the company/partnership is disposed of.
Assets which will not qualify include:
• Investments, shares and securities held by a partnership or sole trade
• Disposals of assets where the trade is not disposed of – for example a farmer who sells one field of many, continuing to farm
There will be both winners and loses as a result of these changes. However, generally the business community will be worse of as a result of these changes.
