As your trusted advisors, we want to keep you informed about potential changes that may impact your financial planning. Recently, there have been discussions around reforms to Capital Gains Tax (CGT), which could affect the sale of your assets.

The Budget is now confirmed for 30th October 2024.

Clients that hold UK assets with a capital gain or are in the process of selling such assets should get in touch to see if any planning can be undertaken pre-budget to minimise the impact of any increase in rates – for example, if you are selling your business, liquidating a company structure or selling a property.

The same could also apply to share portfolios and investments, and more information on this is included in our general election newsletter, which is linked at the bottom of this article.

As policies evolve, we’ll keep you informed. Remember, tax planning remains crucial.

If you have specific concerns or need personalised advice, reach out to your usual Jerroms contact.
 
Proposed Changes to CGT
It seems likely that CGT could increase, perhaps to be aligned with income tax rates as it was before Gordon Browns changes in 2008; so potentially 40% or 45% as opposed to 20% for business assets. If it is changed, then it is also likely that the increase will be implemented swiftly, without allowing time for planning to avoid the increase.

Given the dramatic decrease in the CGT annual exemptions over the last few years, an increase in the rates will not be a welcome change.

Taking into account the rumoured changes, we recommend that business/asset owners should look to accelerate any current sale negotiations currently taking place to ensure that deals are completed as soon as possible and before any potential change to capital gains.

On the other hand, other business owners will want to wait until the new Chancellor has had a chance to set out her new Budget and fiscal rules so they can plan accordingly.
 
How to Protect your Sale Proceeds
Given the uncertainty, here are some steps you can take to protect your sale proceeds:

• Timing Matters: If you’re planning to sell an asset, consider the timing. Depending on when the changes take effect, it may be beneficial to complete the sale before any new rules are implemented. Capital gains changes have historically been implemented swiftly following the announcement, which may not leave much time, if any, for planning. Company pension contributions in the years approaching the sale could also be vital in helping you achieve your income objectives post-sale, see more information below.

• Seek Professional Advice: We can provide tailored guidance to help you navigate the evolving tax landscape.

Pension Contributions: A Strategic Opportunity for Business Owners
Employer Pension Contributions for business owners are considered an allowable business expense, reducing company taxable profits, and thereby lowering corporation tax liabilities while allowing tax-efficient extraction of monies from your business.

For the tax years 2024/25 and 2023/24, the annual allowance is £60,000. It was £40,000 for the 2021/22 and 2022/23 tax years.

Personal contributions are limited to UK-relevant earnings; however, employer contributions have no link to the individual’s earnings.

Business owners can therefore carry forward unused allowance, potentially allowing a lump sum company contribution of up to £200,000 if they were members of a UK registered Pension Scheme since the 2021/22 tax year. This could potentially save the company £50,000 in Corporation Tax (between 19-25% depending on profits) while extracting company funds into your own name tax-efficiently and free from future business or creditor risk.

Your pension funds can then be invested to grow free of CGT, with 25% taken tax-free (up to £268,275) and the remainder treated as income in the tax year it is drawn. While in your pension, these funds are also considered outside the business owner's estate for Inheritance Tax purposes, potentially avoiding the 40% IHT charge.

With the change in government, now may be an opportune time to maximise current and previous years' allowances, provided the company funds are surplus to working capital requirements.

This is an overview and not advice and is based on current legislation.

For assistance, please contact Jerroms Financial Planning, who can provide tailored and FCA-regulated advice.