UK: Capital gains and losses.

UK: Capital gains and losses. - Time it right - get the new CGT rate and the old retirement relief.

Last Updated: 31 Aug 2010

Time it right - get the new CGT rate and the old retirement relief.

The introduction of taper relief for long-term capital gains, embodied in this year's Finance Bill, is welcome news for many business owners because it offers a low 10% rate of capital gains tax (CGT) on the sale of business assets held for 10 years. But owner-managers looking forward to tax-free gains under the old Retirement Relief regime may be worse off as it is phased out over the next five years.

The new taper relief exempts from CGT 7.5% of the chargeable gain on a disposal of a business asset for each whole year that the asset has been owned as a business asset since 5 April 1998. Assets owned on or before 17 March 1998 are deemed to have been owned for a whole year, so are already entitled to a 7.5 % exemption. Business assets include shares in a trading company provided that the holding has 25% or more of the votes. For a full-time working director or employee, this minimum holding drops to 5%.

Retirement relief enabled qualifying owner-managers, aged 50 or over, up to £250,000 tax-free and up to a further £750,000 with tax of £150,000.

These limits are being phased out at 20% per annum from 5 April 1999.

The good news is that, for the next five years, a business owner can have both retirement relief and taper relief. For example, an entrepreneur in his 50s, already entitled to full retirement relief, selling his business now for £1 million need only pay tax of £138,750; £11,250 less than pre-Budget. However, if sold shortly after 5 April 1999, his tax bill will rise to £170,000. Worse still, tax on a sale in May 2003 would be £220,000 - tapering relief not adequately compensating for the loss of retirement relief.

For owners with anticipated gains in excess of £1.5 million, taper relief may prove more beneficial than retirement relief. Owners need to look at all factors in determining the time and manner of selling their businesses.

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