On Wednesday 30th October, the new Labour government will deliver its first Budget in Parliament. Whilst there continues to be growing speculation around what changes will be announced, it is widely anticipated that Capital Gains Tax (CGT) rates will be increasing, with the possibility of aligning with the top rates of Income Tax.
When could the CGT rates change?
The potential increase of CGT rates may not come as too much of a surprise to many and, given that Labour pledged not to increase working taxes as part of its election manifesto, many have simply been waiting for confirmation of the increase since Labour came into government.
If CGT rates are to be increased as part of the measures announced at the upcoming Autumn Statement, many owner managers are likely to be impacted, particularly those looking towards retirement in the short to medium term.
As a result, the timing of any respective exit transactions will become even more important than usual. Whilst the Government could in theory introduce any changes with immediate effect, they may also decide to delay these until the beginning of the new tax year on 6th April 2025, giving taxpayers a 5 month window of opportunity to take action.
Are any other changes to CGT expected?
Another potential change to CGT could include the curtailing of Business Asset Disposal Relief (BADR), a tax break which is currently available to owner managers on the disposal of their company shares, providing them with access to a reduced CGT rate of just 10% on the first £1 million of any gains arsing, subject to satisfying the relevant qualifying conditions.
Following the changes which were introduced in March 2020, the BADR lifetime limit has already been materially reduced from £10 million to the existing £1 million value. With the current economic pressures weighing heavy on Labour’s shoulders, many are concerned that the relief could be abolished altogether come the 30th October.
What is a solvent liquidation and is this a viable option?
A solvent liquidation, also known as a Members Voluntary Liquidation (MVL), is a regulatory process that can be used to secure an orderly and structured winding up of a company.
For an MVL, there will typically be significant tax benefits available to the shareholders on the extraction of the residual cash within a company, with distributions being treated as capital rather than income receipts.
Is there anything I can do to prepare for a potential CGT increase?
Considering each of the above points, now would seem to be a good time to start reviewing asset portfolios, with a view to effectively planning the timing of any imminent disposals. It is a great time to take advantage of the existing rates and reliefs, before any potential changes are introduced.
We are already starting to experience a significant uptick in the volume of enquiries coming in from owner managers, each of whom are seeking to explore the possibility of undertaking a solvent liquidation transaction before 30th October, for the exact same reasoning.
We appreciate that as a business owner any potential changes to CGT rates may be daunting, and our team of tax specialists are available to assist you in preparing for these events. If you are considering a solvent liquidation of your company, our business recovery and restructuring team can advise you on the next steps you should take. Get in touch today to find out more.
