The UK pre-budget: Pros and Cons for UK entrepreneurs
If you’re a UK entrepreneur, Wednesday wasn’t the best day for you was it? Alistair Darling, UK chancellor, announecd he would scrap taper relief and set capital gains tax to a flat rate of 18%. So what does this mean?
Capital gains tax and taper relief 101
Capital Gains Tax is the tax charged on any asset you own that has accumulated in value and you plan to sell (or dispose to someone). So for example if you had started a business, grown it for five years, and sold it - you would be charged capital gains tax on that business.
Taper Relief was a system that reduced the capital gains tax you would pay if you had owned the asset for more than two years. So using the above example, you would be charged less capital gains tax the longer you owned that business (the minimum was two years).
Sadly, it’s even a little more complicated than that for example there was an £8500 exemption. It’s these complications, and private equity types enjoying great tax breaks, which have caused the changes.
How this might affect you
- It doesn’t matter how long you now own a business, you will now pay 18% capital gains tax when you sell.
- You might want to consider selling your business before April 08.
- There might be some good businesses available to buy before April 08.
- There is less incentive for people to invest in your business.
- Anyone that has invested money into your business, for a minimum of two years, might be tempted to sell before the changes come into effective in April 08.
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