Changes to taxation rules mean that as of 6 April 2002, business assets held for four years or more can be taxed at 10% instead of the current 40%
As of 6 April 2002, business assets held for more than four years can be disposed of at the lowest level of capital gains tax, 10% rather than 40%.
Business taper relief, which was introduced along with CGT taper relief that applies to shares and investments, applies solely to the sale of business assets, such as the business itself, or a portion of those assets.
Until the start of this tax year, the sale of these assets would have incurred a tax liability of 40%. Now, so long as they have been held for a minimum of four years, the tax liability would be just 10%, leading Scottish Equitable International to believe there will be an influx of capital into the personal investment market over the next few weeks.
Margaret Jago, Scottish Equitable's technical manager, says: 'Many investors with significant shareholdings are likely to have held off from disposing of their shares until the tax treatment was more favourable.
Business taper relief reduces the bottom line gain in a CGT calculation so that the overall amount is subject to a rate of tax that is lower than the rate at which the individual would normally pay tax.
'Maximum business taper is available for the first time since 6 April, meaning a 40% taxpayer will actually pay tax on any gains at a rate of 10%. It is likely there will be a spike of capital in the market as a result.'
Intermediaries with clients of small to medium-sized business could use this as a marketing opportunity, adds Simon Farrant, head of the specialist advisory service at Towry Law.
The relief applies to the capital gains of individuals, trusts and the personal representatives of deceased persons, but not to the capital gains of companies, he says. 'The Chancellor decided that previous legislation, the indexation regime, was not generous to business assets. Business assets are classified as assets held by a partner in a partnership.
'In the 2002 Budget, the Chancellor is expected to extend the benefits of this relief even further, making it even more generous ' the period for which business assets are held so as to be subject to relief is likely be reduced to two years from four years.'
The change to two years from four will mean that the effective rate of tax for a higher rate taxpayer is reduced to 20% after one year of holding an asset and 10% after two years, making the UK regime among the most favourable in the world, Farrant notes. He agrees that more and more individuals will seek advice due to the changes in the tax regime. 'This is a good time for advisers to go back to clients and accountants,' says Farrant.
Richard Leeson, head of sales- international products at Scottish Equitable International, adds: 'The recent spate of high-profile corporate failures, such as Enron and Marconi, has highlighted the need for investors to diversify away from just one company.
'Intermediaries should be considering a move to a broader investment but also one which provides tax advantages, as these investors have managed to reduce the level of tax paid on their gains.
'Offshore bonds provide fund choice within a tax-efficient environment and could provide an option. This is the type of opportunity which can be enhanced by strong professional connections between advisers and accountants, who will be well placed to cross-refer clients in this situation.'
He notes that the group is expecting the full impact of business taper relief will prompt many shareholders to dispose of them, especially in light of the fact that the outlook for stock markets is starting to look brighter.
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