The CGT reform proposals – what should you do?

The proposals from the Office for Tax Simplification (OTS) regarding the reform of Capital Gains Tax (CGT) were published several weeks ago.

The Chancellor has announced that the Budget will be taking place on 3 March 2021 and it is likely that changes will be made to CGT. It is expected that the rate of CGT will be increased from its current level to be equivalent to income tax rates.

Whilst it is difficult to plan with certainty, individuals who are substantial shareholders in trading companies may want to consider implementing pre-Budget planning.

By gifting shares in trading companies into a structure, such as a discretionary trust, a capital gain can be crystallised. This will mean that the capital gain should be taxed at the prevailing rates at the date of the gift. The quantum of the capital gain will be by reference to the current market value of the shares to be gifted and will need to be supported by a formal valuation.

The gift into the trust will not attract any inheritance tax if the shares in the company are fully eligible for Business Property Relief (BPR). BPR operates in a way that allows 100% relief to be obtained from any lifetime charge to inheritance tax. There are, of course, wider tax and legal implications that need to be considered, including using this process for estate planning purposes. It will also only be of interest to those individuals who are prepared to pay the resulting CGT in January 2022, which may be well in advance of any onward sale of the company.

It is important and relevant to note that the Government could introduce anti-forestalling rules to counteract any planning that could be undertaken, and all the options should be carefully considered, including the possibility of future changes in tax legislation.

It will be necessary to take full advice on these proposed measures and Gerald Edelman and its team are available to have such discussions with you. For further support, contact your relationship partneror email hello@geraldedelman.comand a member of our team will be in touch.