Capital Gains Tax Tools for UK Entrepreneurs 2020

by | May 4, 2020


When looking at investments – be they financial or property related, it is always best to explore what is possible when it comes to the taxes that fall due when they are sold.

In most cases, this will be Capital Gains Tax (CGT). The tax can even apply when assets are sold that are owned by non-resident investors. Worse still – when it comes to residential property the tax on the gain could fall due within 30 days!

Putting property into a Limited Company does not fix this problem – it simply turns it into a Corporation Tax issue.

We all know that UK pensions can own assets and sell them without paying any CGT – but there are strict rules related to what investments they can hold (residential property is not allowed for example) – and if using a UK pension there may also be limits as the maximum size of the investments before additional taxes become due.

Our planning will explore not just the future investments, but also the existing ones – in case we can shift things around to reduce the final CGT burden.

There are exempt structures – such as QNUPS (Qualifying Non-UK Pensions) and Excluded Property Unit Trusts that can be deployed to work with both new and existing investments, to make sure that no CGT is payable when (or if) the assets are sold.

Entrepreneurs with trading companies will know all too well that when they sell their shares, they will be allowed to make a £1m gain with tax rates being only 10% – however the amount has just been reduced from £10m and may well be reduced again. There are accounting issues with some company sales – which restrict this ‘Entrepreneur’s Relief’ still further. Which is why we always prefer to see clients given the proper CGT planning advice, and make their sales of assets within a tax exempt structure. This applies equally to trading business shares as well as property.

If an entrepreneur were to assess their business as something that will be worth much more than £1m – now is the time to take action. Ideally the planning needed to be in place before the business were started, but that only works for business owners who are selling one business and want to re-invest into another one.

In principle there is nothing wrong with a tax exempt structure buying shares and paying the price over a period of years as a ‘deferred consideration’. The dividends on the shares will also be paid tax free into the structure, allowing funds to be accumulated to complete on the payment schedule agreed at the point of sale.

Structuring a business as an EIS (Enterprise Investment Scheme) also allows investors to receive the proceeds of a share sale as tax free profits, as long as they have held the shares for the qualifying period of 3 years. Again, use of EIS and SEIS (Seed Enterprise Investment Scheme) rules can be worked alongside the use of QNUPS and other exempt structures – to arrive at the best possible CGT outcome.

Where UK pensions are used, we can make sure that investments into property do not trigger the restrictions clauses, or breach the lifetime limit rules.

With capital gain tax planning the aim is to begin putting the long-term strategy into place as soon as possible, so as to minimise the capital gains tax payable.

When moving property assets around, we also need to take SDLT (Stamp Duty Land Tax) into account. This is really important where there are mortgages in place – as HMRC see the mortgage value as the ‘SDLT’ value. Again – perfectly valid reasons for wanting to put planning in place at the earliest possible opportunity.

There is nothing stopping a wealthy entrepreneur from managing their affairs so that there is very little capital gains tax payable on their investments, even large property portfolios.

Most Advisors, such as IFA’s and Accountants do not have the internal experts to assess a client’s FULL situation – and come up with the best overall strategy.

As I have worked in the tax planning field for over 30 years, I have personal access to experts in all taxes and can combine these experts into a unique service that really does go beyond what you’d get from your normal ‘Advisors’.

Every wealthy entrepreneur or property investor I have ever met had their own Accountant, Solicitor and Financial Advisor – yet in 90% of cases we were able to dramatically able to improve their overall exposure to UK taxes.

What is vital is the proper implementation – with care at every stage.

This is why we offer a FREE consultation – as it lets us explore the current situation before jumping in with ‘solutions’.

If you are interested in reducing your current and/or future income tax exposure, do not hesitate to call or email us now.