News from Cryer Sandham Limited
Business and financial news
A) CGT Ė Entrepreneurís relief
As you are no doubt already aware (see previous newsletters) the Chancellor amended the rate of Capital Gains Tax to 18% effective from 6 April 2008 for all CGT disposals. Previously the rate had been the rate applicable to the individuals own tax affairs (ie 0, 22 or 40%) as reduced by taper relief. The net effect is that for most taxpayers the disposal of a non business asset would now attract lower CGT but the disposal of business assets would be subject to much higher charges.
There was therefore significant complaint from the business community leading the Chancellor to create Entrepreneurís relief. There still remains however some discrepancies between the old business asset taper relief and the new Entrepreneurís relief:-
1) Disposal of business property.
Under the old taper relief rules the disposal of a business property at any time would only generate a tax liability of 10%. Under the new rules in order to get the same effective 10% rate the disposal of the property must be at the same time or as part of the process whereby the individual is disposing of all of his trading activity (ie on retirement). Furthermore Entrepreneurís relief will not be given (or will only be proportionally allowed) if the individual is or was in receipt of rental income therefrom. This ruling is retrospective.
2) Qualifying time scale/ownership
In order to qualify for Entrepreneurís Relief the individual concerned must have an interest in the business in excess of 5% and be a partner, officer or employee. However unlike taper relief the qualifying period is only the last 12 months. Care must be taken where a business is incorporated in order to facilitate a sale thereof as the company must then trade for a period of 12 months in order for the owners to benefit from Entrepreneurís Relief on the disposal proceeds.
3) Residential lettings
A positive side effect of the new relief is that in certain circumstances taxpayers disposing of residential let properties may be able to reduce their tax burden to 10%.
Any letting that can be classified as a Ďholiday let as defined by tax legislationí is deemed to be a business rather than investment activity. Accordingly if a tax payer can re-arrange his letting affairs so that it qualifies as a holiday let for the last 12 month period up to its sale the disposal of that property will benefit from Entrepreneurís Relief.