Potential changes to capital gains tax makes now the time for you to sell your business.
It has been suggested that capital gains tax could be increased, in a bid to pay back the money borrowed to support the economy during the COVID-19 pandemic.
A recent report by the Office of Tax Simplification (OTS) has revealed that the Treasury could raise £14bn by increasing capital gains tax rates to bring them in line with income tax.
It comes after the UK’s national debt passed £2trn for the first time in July, as the economy has struggled with the impacts of coronavirus and the cost of supporting businesses and employees.
What is capital gains tax?
Capital gains tax is a tax on the profit you earn when you sell or dispose of an asset that’s increased in value. These assets can include property or shares, for example.
At the moment, you can earn £12,300 in capital gains free of tax. Anything earned above this threshold will be taxed at 10% for basic-rate taxpayers, and 20% for higher-rate taxpayers.
However, OTS have recommended that the Government reduce this allowance to between £2,000 and £4,000.
But that’s not all…
The report also suggested doubling tax rates.
How does this affect business sales?
A business is considered an asset. This means that selling it will mean you will be eligible to pay capital gains tax.
At present, if you are selling a business you may qualify for entrepreneurs’ relief, also known as business asset disposal relief.
This is a type of capital gains tax relief which means you will only be charged the basic rate (10%) on the first £1m of gains you earn.
If the Government decides to act on the recommendations made by OTS, tax rates would be increased.
This means business sellers could end up paying twice as much tax as they would pay today.
Therefore, anyone considering selling their business should do so now to take advantage of the current lower rates.
Are you thinking of selling your business? Find out how much your business is worth instantly for FREE with our online Valuation Tool.