Labour could double Capital Gains Tax later this month - Is it time to rethink your exit strategy?
With Labour preparing its October budget, UK entrepreneurs and business owners are bracing for potential changes to Capital Gains Tax (CGT) which could see the rate more than double, from 20% to 45%.
The Institute for Public Policy Research - a think tank that Labour has used previously for policy ideation - has recommended aligning CGT rates to Income Tax rates, estimating this will raise £50 billion over the next four years.
But increasing the CGT rate in this way will have a profound impact on anyone looking to sell their business, and will leave UK entrepreneurs with two pressing questions; how will this impact my business exit, and should I consider leaving the UK altogether?
How could it impact you?
A worked example
How much CGT you pay depends on your income tax band. Top rate taxpayers currently pay 20% CGT on profits made above their CGT annual allowance of £3,000.
Currently, if you were to sell your business and generate a profit of £3 million from that sale, ‘Business Asset Disposal Relief’ [previously called ‘Entrepreneur’s Relief’] would reduce the CGT payable on the first £1m to 10%, and the balance would be taxed at 20% [less your CGT annual allowance of £3,000].
The CGT you would currently pay on the sale of your business realising a £3m profit would therefore be £499,400.
If Labour increases CGT in line with Income Tax rates, as a top rate taxpayer you will pay CGT of £998,650 instead of £499,400 on the sale of the business.
Accelerating your exit planning
A significant hike in CGT will act as a catalyst for many UK entrepreneurs who have built substantial value in their companies to re-consider and expedite their exit planning
– and potentially consider international relocation, with the opportunities presented by significantly more tax-efficient jurisdictions, such as Dubai, becoming even more attractive.
Speak with us to explore your options
As the Budget draws closer, now is the time to explore your options.
As international financial planners and wealth managers we can provide you with expert advice on protecting your wealth and securing your financial future, so if you are thinking about your business exit or re-locating away from the UK and would like to schedule an initial consultation contact us today or email us at [email protected].
This communication is for information purposes only and does not constitute financial, legal, or tax advice. Please schedule a meeting to receive advice on international financial planning and wealth management.
Current Capital Gains Tax Rates & Annual Allowance
Individuals [including self-employed sole traders, partners in business partnerships, and company owners] are given an annual CGT allowance of £3,000 [down from £6,000 in the 2023/24 tax year and £12,300 in the 2022/23 tax year].
CGT is payable on any profits in excess of the CGT Annual Allowance, from the sale of assets in that tax year. The allowance resets annually on April 6 when the new tax year begins.
- 18% on residential property
- 10% on gains from other chargeable assets
CGT is payable on any profits in excess of the CGT Annual Allowance, from the sale of assets in that tax year. The allowance resets annually on April 6 when the new tax year begins.
- 24% on residential property gains
- 20% on gains from other chargeable assets
- 28% on gains from "carried interest" if you manage an investment fund
[There are different allowances for trustees and those with non-domiciled status]
Business Asset Disposal Relief (previously called 'Entrepreneurs’ Relief' - updated in the Finance Act 2020) reduces the rate of Capital Gains Tax (CGT) on disposals of businesses or business assets from 20% to 10%.
There is a cumulative lifetime limit for qualifying gains of £1 million for disposals on or after 11 March 2020. This is reduced from the previous limit of £10 million for Entrepreneur's Relief purposes.
A claim for Business Asset Disposal Relief must be made on or before the first anniversary of the 31 January following the tax year in which the disposal is made.
Read more of our latest articles
Please complete the form below with your details and we will get back to you as soon as possible.
