Capital Gains Tax and family succession

by | Aug 1, 2024 | Budget, Business Asset Disposal Relief, Capital Gains Tax, Owner Managed Businesses (OMBs), Selling your business, Tax, Tax Planning, Taxation

timing is everything act now on capital gains tax

Craig Simpson, Tax Partner at Bates Weston  considers the threat of Capital Gains Tax increases and the impact on family succession timing. If you are considering a family buyout, it may be wise to act ahead of the Budget on 30 October 2024.

 The Chancellor Rachel Reeves has given a strong hint that some taxes will increase in the October Budget. Given the big three, income tax, VAT and National Insurance appear to be protected then it would seem Capital Gains Tax (CGT) is the likely target. There has been much talk about aligning CGT and income tax rates. Speculating about possible changes:

  1. Aligning CGT with income tax rates would see rates jump from 20% (24% on residential property) to 40% or even 45% if gains are simply added to income levels. A huge increase!
  2. Removal of reliefs – Business Asset Disposal Relief could be a target. Currently the first £1m of lifetime gains are taxed at 10%.
  3. Removal of the CGT market value uplift on death. Currently gains wash out on death, even where an asset may qualify for Inheritance Tax reliefs or inter spousal transfers.

In particular 1 and 2 above would have a massive impact on the retirement plans of business owners looking to pass their business down to the family members who will take the business forward, but are looking to realise some capital value for retirement. So what can be done? The obvious solution is to accelerate the disposal to a date before the Budget on 30 October. It is possible to structure the transaction so that an amount of future profits of the business could be captured as capital in an earn-out mechanism.

If you would like to discuss your plans further then please contact your usual Bates Weston Partner or email Craigs@batesweston.co.uk.

As always, you are reminded that this article is generic in nature and you should take no action based upon it without consulting your professional advisor.

Related blogs and additional information:

Budget date 30 October 2024 | Bates Weston

Fixing the foundations: public spending audit 2024-25 (HTML) – GOV.UK (www.gov.uk)