Sage and Company - Capital Gains Tax Reform

Capital Gains Tax Reform

The things we didn’t know….

Some businesses are beginning to discover that there was more to the Chancellor’s Capital Gains tax reforms than first met the eye!

Take Entrepreneurs’ Relief as an example. It was introduced to soften the impact on the business community arising from the abolition of business asset taper relief. Briefly, if assets qualify for Entrepreneurs’ Relief, any gains arising on their disposal will be taxed at a reduced rate of 10%. This applies to the first £1,000,000 worth of gains made from 6th April 2008.

But there is a potential pitfall for those who rent property to themselves as a sole trader, or to a partnership or limited company in which they have an interest.

Charging rent has been a tax efficient way of extracting additional money from a company. Under the old taper relief rules, there was no restriction on the amount of relief available when an individual who had charged rent for the use of the building came to sell that building.

That’s changed. Under the new rules, if a full market value rent has been charged, no Entrepreneurs’ Relief will be available when the property is sold.

If some rent has been charged at less than market value, the amount of relief will be restricted to only allow relief in respect of the ‘rent free’ element.

Worryingly, rent charged before 6th April 2008 may also be taken into account.

In general terms, Entrepreneurs’ Relief will be available where an individual sells a building that has been used by:

His sole trade business; or
A partnership where the person owning the asset is a partner; or
A company where the owner of the asset is a director, company secretary or employee of the company who also owns more than 5% of the company’s shares.

However, the sale of the building must be in conjunction with the sale or cessation of the sole trade, partnership interest or shares.

These changes may have implications on how much tax you’re likely to have to pay now and in the future. Talk to your accountant, or for more information, contact tax specialist Sarah Swan at business advisors, Sage & Co. Tel: 01745 586360.

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