2021 CGT RATE RISES – AND HOW TO PLAN AHEAD…..
One of the advantages of owning your own business is that you can sell your business and pay CGT at only 10% (based on qualifying for Business Asset Disposal Relief or ‘BAD’). Many of you will remember ‘BAD’ as Entrepreneur’s Relief.
Since it was introduced this relief has been reduced from a lifetime limit of £10m per individual – to £1m per individual. This reduction came into effect in March 2020 before the full economic impact of COVID-19 had been felt.
With another Budget planned for March 2021 there is speculation that this £1m relief will be altered again. In addition the ‘normal’ rate of CGT on the sale of shares in a company could also be increased, so that entrepreneurs will end up paying significantly MORE than the 10% that they were expecting to pay on a sale.
Currently we do not know what this new regime will look like, but if someone were selling their share holding for £1m the outcomes could be seen as one of the following:
1) Current Regime at 10% – CGT would be £100,000
2) Post Budget 2021 with Business Asset Disposal Relief scrapped and CGT charged at 20% – CGT would be £200,000
3) Post Budget 2021 with CGT taxed as income at 45% – CGT would be £450,000
So the best case could be tax of £100,00 and the worst case would be tax of £450,000. That’s quite a large difference!
Those entrepreneurs planning on building their business for a sale in 2-3 years (or a float on the stock market) will have to keep their fingers crossed that not only the 2021 Budget, but perhaps the 2022 and 2023 Budgets are not going to move their sale from 10% up to 45% tax.
As you can probably tell the reason behind this post is to let you know that there are things you can do today that will lock in the Business Asset Disposal Relief at 10% – even if you end up selling/floating in 3-5 years time. Each case is unique so if you would like to talk more – please book yourself a FREE Consultation now. It might just lead to you being able to pay 10% rather than 45% on the sale of your business, which makes this call a potentially very valuable one to have.
The time between now (Jan 4th 2021) and the Budget in March is pretty tight, so in order to ensure we can give you advice that fits your scenario before the Budget – we’d need to be speaking to you within the next few weeks!
Here’s to 2021 being the year everything returns to normal and we wish you and your business every success for the future.
Paul Stewart – Specialist Tax Advisor Links: