By Ken Maggs, Moore Thompson
There were a number of announcements in last week’s Budget that will affect small business owners, contractors and sole traders, from the extension of Entrepreneurs’ Relief to a decrease in Capital Gains Tax (CGT).
The extension of Entrepreneurs’ Tax relief means that entrepreneurs will be able to access a 10 per cent rate of capital gains tax on newly issued shares in unlisted companies purchased on or after 17 March 2016, provided they are held for a minimum of three years from 6 April 2016. These will be subject to a separate lifetime limit of £10 million of gains.
The Government will also allow entrepreneur’s relief to be claimed on the disposal of privately held-business assets to a family member, and will allow more relief in joint ventures and partnerships where the existing 5 per cent minimum holding conditions are not satisfied.
In addition, the rate of CGT has been reduced from 28 per cent to 20 per cent for higher rate taxpayers. The rate for basic rate band taxpayers will change from 18 per cent to 10 per cent. While this does not apply to gains made on the disposal of residential properties, for those looking to close their company, a capital distribution will be more tax efficient than an income distribution, or dividend, even in cases where Entrepreneurs’ Relief cannot be claimed.
Small firms are also delighted that almost all the recommendations made by the Office for Tax Simplification (OTS) have been adopted by the Chancellor, with others still to be discussed. These include an investment of £71m to make it quicker and easier for small businesses to deal with HM Revenue & Customs (HMRC) and a proposal for an asset protection model for the self-employed.