The Office of Tax Simplification (OTS) published their report last week (11 November) on Capital Gains Tax (CGT) following the Government’s request for it to be reviewed to “identify opportunities relating to administrative and technical issues as well as areas where the present rules distort behaviour and do not meet their policy intent”.
Not surprisingly, (these sort of reports are always viewed with suspicion), the Office of Tax Simplification CGT report has been received negatively and in the opinion of many commentators it does not simplify CGT. It is also not regarded as a good way of generating additional collectable tax.
Most advisors would say the UK is an attractive market in terms of the general tax system. Given the amount of money the Government has had to borrow (and continues to borrow) to keep the economy going means it has to look at ways to balance the books at some point which will mean higher taxes. The Government said the OTS report will be taken into account in due course.
Our Corporate and Commercial team have been discussing the possible impact the OTS report may have on the sale of businesses. If accepted, sellers will be hit with the increases to CGT rates as the OTS recommends aligning those with income tax rates.
This led to a discussion about whether shares are going to be “dumped” in advance of any changes even though such action should be determined by a long term investment strategy and not by tax alone. Business owners will be particularly concerned and disappointed with the OTS proposals as the changes to Business Asset Disposal Relief (formerly Entrepreneurs Relief) were only introduced in April 2020 and reduced the relief previously available. There is a sense this is another nail in the coffin for this relief.
There is talk about an exit of entrepreneurs from the UK and settling overseas where they can keep more of the proceeds from selling a business. Before dreaming about escaping and settling in sunnier climes, it is worth first sitting back and thinking is there a right time to sell a business? Would it be better to delay for a few years and achieve a much bigger sale price even with a higher tax rate? It could lead to a different mindset in family businesses like that in Germany where such sales are less frequent.
If the Government accept the recommendation of the OTS, there is some time to plan as they have said their proposals should not be introduced before 2023. Something else to think about during these challenging times but think about them you should!
Feel free to contact me if you want to discuss any issues arising out of this article.
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