Small businesses rush to beat the capital gains tax hike
Corporate finance advisers report a surge in inquiries from small business owners keen to sell their companies before a likely increase in capital gains tax (CGT) in the new year.
Chancellor Rishi Sunak is considering proposals for changes to CGT from the Office of Tax Simplification as he looks to raise funds in the wake of Covid-19. Small business owners could face the biggest hit. Sunak is widely expected to align CGT rates much more closely with the income-tax system. Where most taxpayers currently pay CGT at a rate of 20% – falling to 10% for basic-rate taxpayers – higher- and additional-rate taxpayers are charged 40% and 45% respectively on their incomes. Doubling CGT rates could bring in billions.
An additional worry for small business owners is the mooted abolition of Entrepreneurs’ Relief, under which founders pay CGT at only 10% when selling their companies. While the value of this relief was reduced in March, with entrepreneurs now subject to a lifetime limit of £1m of capital gains compared with £20m previously, abolishing it altogether would still cost some owners dearly.
The impact of the CGT changes could be considerable. An additional-rate income-taxpayer selling their business today for £5m would pay £900,000 of CGT, taking into account Entrepreneurs’ Relief and a 20% CGT rate. Abolishing the relief and aligning CGT and income-tax rates would see this bill rise to £2.25m.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Selling a company simply for tax reasons may not appeal to many entrepreneurs. However, for business owners who had already been mulling a sale, it may make sense to accelerate the process.
David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.
-
Private school fees soar and VAT threat looms – what does it mean for you?
Rising private school fees could see more than one in five parents pull their children out of their current school. Before you remortgage, move house or look to grandparents for help, here’s what you need to know.
By Katie Williams Published
-
Best and worst UK banks for online banking revealed
When it comes to keeping your money safe, not all banks are equal. We reveal the best and worst banks for online banking when it comes to protecting your money from scams
By Oojal Dhanjal Published
-
Should your business invest in a VoIP phone service?
Here's what you need to know about VOIP (voice over IP) services before landlines go digital in 2025.
By David Prosser Published
-
The end of China’s boom
Like the US, China too got fat on fake money. Now, China's doom is not far away.
By Bill Bonner Published
-
What is the future of Royal Mail in the UK?
With fewer of us sending letters and parcels, the Royal Mail is finding dealing with the nation’s post is an increasingly unprofitable and costly business.
By Simon Wilson Published
-
What's the secret of Manolo Blahnik's success?
Fashion maestro Manolo Blahnik shows little sign of slowing down at 81, and his company notched up a record financial year in 2022. What is the secret of his success?
By Jane Lewis Published
-
Michelle Mone's "tough year of pain"
Michelle Mone liked to portray herself as a working-class heroine who worked her way to the top through grit and determination. But her pedestal is built on sand.
By Jane Lewis Published
-
Trevor Milton, the Elon Musk wannabe, is jailed for fraud
The former CEO of Nikola, Trevor Milton, has been found guilty of lying about the development of the company's electric trucks.
By Jane Lewis Published
-
Directors should think twice before waiving limited liability
Should small-business directors ever provide a personal guarantee in return for bank finance?
By David Prosser Published
-
Why Russia's economy is doing better than predicted
Sanctions were supposed to strangle Russia’s economy, but it seems to be thriving. What’s going on?
By Simon Wilson Published