CGT shake-up is both threat and opportunity

CGT shake-up is both threat and opportunity

Capital gains tax changes mooted by the Office of Tax Simplification could make it more difficult for advisers looking to sell their business and leave the market, experts have claimed.

It comes amid growing rumours the tax could find itself the target of a chancellor scrambling to fill a multi-billion pound hole in the public purse following the coronavirus pandemic.

Joshua Lee, senior broker at Gunner & Co, said it was widely accepted next year’s Autumn Statement was likely to include tax hikes, especially in relation to CGT.

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He warned: “That is going to affect both your sale price, and the net proceeds from that sale. It will also affect business owners who are looking to work on in the next few years and the proceeds taken from running the business on an annual basis.

“No doubt it brings into question whether you look to make an exit or look to ride out the storm. It will be different for everybody.”

Earlier this month a 136-page review from the OTS called on the government to overhaul the current CGT system, advising instead its rates be more aligned with income tax.

Chancellor Rishi Sunak commissioned the review back in July, asking the OTS to consider the overall scope of the tax and the rates that apply, as well as the reliefs, exemptions and allowances.

The report found evidence of “distorted behaviour” in the current CGT structure that was often counterintuitive with “odd incentives”.

Although Mr Sunak did not lay out tax reforms in his November spending review, the OTS report has left many specialists expecting big reforms to CGT, including an inevitable increase in tax rates next year.

Mr Lee urged advice principals who still had time before leaving the market to focus on profitability, stating there was no “better way to offset increased taxation” than by increasing income into the business.

The OTS report also found the “relatively high” annual exempt amount of £12,300 “distorted” investment decisions, instead suggesting it be cut to less than £4,000.

George Bull, senior tax partner at RSM, said: “The OTS report has led to a widespread expectation that CGT rates will be aligned
with income tax rates up to 45 per cent.

“I can’t imagine that a hard-pressed chancellor will miss the opportunity to increase taxes in this way.”

But Mr Bull warned it was “dangerous to let the tax tail wag the commercial dog” and while it may be possible to maximise the value of a sale before April 2021, the landscape will be a “buyer’s market”.

He added: “If you are considering a sale or restructuring of shares in the company during the next year, it may be prudent to bring the sale or restructuring forward and lock into current CGT rates and reliefs.

“Evaluate whether it would be appropriate to sell the shares before the end of the current tax year, with proceeds payable in instalments. This might help achieve a better overall price.