11 September 2009
Protecting against CGT increases
With the differential between CGT and Income Tax rates at a high point (10% or 18% vs. 50+%) and the need to maximise tax revenues, if CGT rates are to be increased, there is a finite window during which locking into the current 18% rate is possible. This planning is also effective at securing the £1m entrepreneurs relief band at 10%.
The planning involves selling parcels of shares to a simple family trust, the mechanics of the sale
allow for a deferred completion, typically for between one and two years, although this date can be
varied. If the transaction completes, for tax purposes, the sale is deemed to take place at the date of
the contract (i.e., under the current legislation and therefore rates of CGT). If the vendors decide not
to complete, a decision that may be influenced by personal liquidity, a future potential transaction,
or indeed a continuing benign CGT regime, then the transaction can be unwound on a CGT neutral
basis.
In the event that the planning is reversed through the rescinding of the contract before completion,
there is an exposure to Stamp Duty Reserve Tax at 0.5%, together with the costs of implementation,
but aside from these elements, there are no other fixed costs. If the contracts are completed, the
current tax rates will be applicable, although any increase in value between the contract date and
completion will attract further CGT and Stamp Duty charges.
This represents an extremely effective means of hedging against a potential substantial increase in
CGT, both in terms of the tax rate, but also the availability and level of entrepreneurs relief.
We have successfully worked with clients on split completion schemes. For further information please contact Nick Byfield (01491 634436) or Doug MacLeod (01491 634433).