Advisers could benefit from entrepreneurs’ relief

Sue Moore

Sue Moore

The headline grabber in the Budget speech was the announcement that the rate of capital gains tax (CGT) would fall from 28 per cent to 20 per cent for gains within the higher and additional rate band.

It is also falling from 18 per cent to 10 per cent for gains within the basic rate band.

These new rates will apply from 6 April 2016 on most gains but carried interest (the share of profits received by the investment manager of a private equity or hedge fund in excess of his investment share) and gains on residential property will remain at the old rates.

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This will ensure that the new CGT charge on non residents on the disposal of residential property will still be charged at 28 per cent.

An extension to entrepreneurs’ relief (ER) was included in the budget speech; the relief will be extended to long-term external investors in unlisted trading companies. The relief, up to a lifetime limit of £10m will apply to newly issued shares purchased on or after 17 March 2016 provided they are held for a minimum of three years from 6 April 2016.

This will enable individuals to finance a business and obtain the 10 per cent entrepreneurs’ rate without having to work in the business. Potentially an individual could qualify for £20m at the entrepreneurs’ rate of 10 per cent if they invest and work in one business and help finance another.

Several changes will be made to ER in the Finance Bill 2016 and backdated to correct some inadvertent consequences of changes made by Finance Act 2015. These include:

■ associated disposal of privately held assets when the accompanying disposal of business assets is to a family member

■ subject to certain conditions ER will be available on goodwill on incorporation

■ ER will be available in some cases involving joint ventures and partnerships where the minimum 5 per cent holding is not met.

Some changes to inheritance tax announced in the Summer Budget or the Autumn Statement have been confirmed and will be included in Finance Bill 2016.

Undrawn funds within a pension fund that has been designated for drawdown by the member but not actually drawn at the date of the member’s death will not be liable to IHT.

This measure will be backdated to deaths on or after 6 April 2011.

The residence nil rate band up to a maximum of £175,000 per person by the time it is fully introduced in April 2020, £350,000 for a couple on second death will still be available if the main residence has been ‘downsized’, provided the downsizing was on or after 8 July 2015.

The main residence at death or before downsizing has to be worth at least £350,000 for a couple to benefit from the maximum relief and it has to be bequeathed to direct descendants.

Sue Moore is technical manager, private client, tax faculty for the Institute of Chartered Accountants in England and Wales