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Mark Tasker
Partner and Head of M&A and Corporate Finance Team
A review and the resulting speculation
In July this year, the Chancellor asked the Office of Tax Simplification to review CGT.
Rishi Sunak’s request came at a time when it was announced that the UK Government had borrowed a record £127,9bn between April and June and the Government’s spending to support the UK’s economy had rocketed. Given the spiralling costs the Government is incurring to tackle the ongoing Covid-19 pandemic, the review has led to widespread speculation that a CGT rate increase is on the cards.
Worst case scenarios?
We won’t know how, if or when the CGT regime will change until the Autumn Statement, the date of which has not been officially announced but we expect it to take place in October or November.
Whilst no one can predict with any certainty the outcome of the Office of Tax Simplification’s review, commentators have suggested there might be:
- An equalisation of the CGT rate and income tax. CGT is paid at a rate of 20% on most assets whilst income tax is paid at a rate of up to 45%. The Chancellor may decide to bring the CGT rate in line with income tax rates or, if he does not opt for parity, increase the rate of CGT significantly.
- An immediate change to CGT. Any changes may be effective from the date of the Autumn Statement (i.e. from midnight the day before), possibly with anti-forestalling legislation to nullify any planning put in place in anticipation of changes. The Government has form; this approach was taken with the unexpected entrepreneurs’ relief changes announced in the Budget on 11 March 2020.
What should you do?
1. Expedite the sale. Is it possible to accelerate the transaction timetable? Completion before the date of the Autumn Statement will cause any gain to be taxed under the current CGT regime. Business owners should attempt to complete any sale as soon as possible (we’d suggest early October at the latest).
2. Trigger gains in advance of the Autumn Statement. If the transaction cannot complete ahead of the Autumn Statement you might wish to consider potential ways of triggering the capital gain in advance of any changes. Risks and drawbacks should be carefully considered; there is the real risk that the Government may introduce anti-forestalling measures alongside any CGT changes.
3. Review any rolled over gains and options. Are you someone who has previously rolled over gains into loan notes which have not yet paid out? Do you have shares which are subject to put and call options? If so, you should give serious consideration to electing out of the rollover treatment or accelerating the exercise of the put and call option (in each case to the extent the buyer/issuer agrees). It is essential to realise that there are many potential downsides to this option which would need to be weighed up and this will not be the right solution in every scenario! No action should be taken in this regard without taking specific legal advice.
If you are looking to sell your business, are concerned about the potential changes to CGT or would like to discuss any of the issues we have raised above, please contact Mark Tasker ([email protected]), Stephen Callender ([email protected]) or anyone in our Corporate Team.
This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.
All content on this page is correct as of September 18, 2020.