Anu Tayal discusses proposed tax changes ahead
The Government has broken many records on public borrowing as it counts the economic cost that COVID-19 has taken on the economy so far. As they aim to stabilise the economy and the public purse, it seems inevitable that certain taxes will have to rise.
In March 2020, the Chancellor announced changes to Entrepreneur’s Relief, reducing the lifetime allowance from £10m to £1m for executives with more than a 5% stake in their businesses. Gains above the lifetime allowance are assessed at the 20% Capital Gains Tax (CGT) rate as opposed to the Entrepreneur’s Relief rate of 10%, which will now capture significantly more transactions in the SME sector.
Notwithstanding this, some have long argued that the CGT rates are generous when compared with Income Tax at 40% for higher rate taxpayers.
In July 2020, Rishi Sunak commissioned the Office of Tax Simplification (OTS) to investigate how CGT is paid by individuals and smaller businesses. We understand the OTS has been given free rein and therefore there could be major changes ahead.
One of the changes could be an alignment of Income Tax and CGT rates, which would reduce the incentive to structure investments / business affairs for capital rather than income.
This would have significant implications for those considering a sale of their business, given the possible changes. If you are already planning to sell your business, you may wish to consider accelerating your plans to take advantage of the current tax regime.
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