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CGT - selling business assets after 5 April 2008

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In this year's Pre-Budget Report, the Chancellor announced radical proposed changes to the capital gains tax regime in the UK. In his speech Alistair Darling revealed that the Government intends to abolish indexation relief and taper relief for business assets from 6 April 2008.

The proposed changes to Capital Gains Tax has outraged most of the business community. Abolishing taper relief will result in the vast majority of small business owners facing an 80% increase in the capital gains tax they must pay when they sell their business.

To make matters worse, the removal of indexation relief means that some business owners will be facing an even bigger increase in the CGT that they will pay when selling their business.

The present position when selling business assets

If you sell a business asset that you have owned for more than 2 years and which qualified as a business asset throughout your ownership, before 6 April 2008, the maximum tax you would pay on the sale as a higher rate tax payer is 10% of the chargeable gain.

The position when selling business assets after 6 April 2008

Under proposed changes to CGT if you sold the same asset after 5 April 2008 you would pay tax at a flat rate of 18%. (This flat rate will apply to all taxpayers whatever your earnings position for income tax.) The previous relief given for indexation of gains to 5 April 1998 and taper relief from that date, will cease to apply as from 6 April 2008. Thus, on the face of it, the increase in tax is 80%

The loss of indexation relief (inflation relief) which is still available on assets owned prior to 5 April 1998, will mean that the effective increase will be more than 80% and in some cases a lot more - particularly where assets were held at 31 March 1982 or before.

Since the Pre-Budget Report, there has been fierce lobbying by business groups who are trying to challenge this increase in tax, particularly to support the owners of small businesses who are now faced with a potential 80% increase in the tax they pay. When these organisations recently met with the Chancellor, he reaffirmed his intention to follow through with the proposed changes to CGT.

For the sake of clarity HfM Tax and Business Services have listed assets that are presently defined as business assets, the list is not exhaustive but covers the main items:

• Shareholdings in privately owned trading companies (including shares listed on AIM)
• The goodwill associated with a businesses run by a sole trader or partnership
• Residential property let on a "furnished holiday lets" basis
• Commercial property let to, or otherwise used by, privately owned trading organisations, including your own business.

HfM Tax and Business Services strongly recommend that all those holding business assets, especially those considering a disposal, review their CGT position immediately.

It is likely that you will pay additional tax if you dispose of your business assets after 5 April 2008. There are a number of strategies that can be discussed but with only until the end of the current tax year to implement appropriate changes - the window of opportunity will almost definitely close at midnight on 5 April 2008.

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Posted November 9, 2007