Can you delay and save tax?


22nd March 2016

Have you ever rushed to complete a transaction due to a heralded change in the tax system? Perhaps on the abolition of taper relief, or the introduction of stamp duty land tax?

Normally new or anticipated tax measures cause a lot of rushing to get things done in advance of Budget day. Yesterday’s Budget is unusual as some of the changes to capital gains tax announced mean that for once it may actually pay to wait. Read more on some of the capital gains tax changes announced yesterday.

With effect from 6 April 2016 the rate of capital gains tax payable by individuals will be reduced from 18% to 10% for gains falling within the income tax basic rate band and from 28% to 20% for gains in excess of the basic rate band. A higher rate tax payer will pay CGT at 20% rather than 28.

To benefit from the new lower rate of CGT the disposal must take place on or after 6 April 2016. For those contemplating disposing of capital assets that will give rise to a chargeable gain and which do not qualify for entrepreneur’s relief, it may make sense to delay the date of disposal, if possible. The date of disposal for capital gains tax is the date on which an unconditional contract for the disposal is entered into, not the date of completion of that contract.

The new reduced rates of capital gains tax will not apply to disposals of residential property that do not qualify for principal private residence relief.

Extension to Entrepreneur’s Relief

At present, entrepreneur’s relief applies to disposals of shares by individuals where in the 12 months prior to the disposal the company has been a trading company (or the holding company of a trading group), the individual has been an officer or employee of the company and has held 5% of the issued share capital of the company.

It is proposed that the Finance Bill will extend the application of Entrepreneur’s Relief to cover the disposal of shares in an unlisted company which an individual acquired on or after 17 March 2016 by way of a subscription for newly issued shares and which the individual had held for a period of three years. At present there is no suggestion that a minimum shareholding will be required and we have no details of what other conditions may be applied to the relief.

Employee Shareholder Status

Employee Shareholder Status enables an employer to give shares with a value of up to £2,000 to an employee in exchange for the employee giving up certain employment rights without triggering an income tax charge. One of the main attractions of employee shareholder status was that on the ultimate disposal of the shares any gain arising was exempt from tax. The Budget has introduced a lifetime limit of £100,000 of CGT exempt gains that can be realised on the disposal of employee shareholder status shares. This limit only applies to employee shareholder status shares issued after 16 March 2016. An employee who was issued employee shareholder shares prior to that date will therefore continue to benefit from a complete CGT exemption on the disposal of their shares.

Morton Fraser MacRoberts LLP

MacRoberts LLP, one of the largest independently owned law firms in Scotland, was founded over 150 years ago by the MacRobert family. We are a leading Scottish commercial law firm with full-service offices in Dundee, Edinburgh and Glasgow with a client base that reaches across Scotland and beyond.

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