Capital gains tax on business assets.

01.01.06

Capital gains tax on business assets.

Capital gains tax has changed radically over recent years, with a clear division arising between the treatment of investments on the one hand and business assets on the other. The latter can be taxed at effective rates of 10% or even less, which may make the impost bearable and prevent the need for the most radical forms of tax planning such as leaving the UK for good!

Some assets are quite obviously investments, while others are equally obviously used in a trade or profession such as to ensure that they qualify for the more advantageous treatment. With others, the position is more dubious but it can undoubtedly be improved in many cases. The relief in question is called taper relief and the rate at which it is available depends partly on the length of the period of ownership and partly on the nature of the assets owned.

For instance, certain forms of let property will qualify for relief, even if the owner is deriving an investment income from such property. But this may need to be planned.

In other cases, it may be possible to develop activities for a sufficient period of time so that a business is being effectively carried on at the crucial point of disposal.

There are traps as well as opportunities within the legislation, notably where assets have only been used for part of the period of ownership for trading purposes. Careful planning can maximise the relief which will in the end be available.

As with so many aspects of the UK tax system, there is an overlap (but not an exact match) with other parts of the tax system. Thus qualification for advantageous capital gains tax treatment may also assist in obtaining inheritance tax advantages, the latter tax also treating business assets very generously. But once more the key point is that planning must take place before assets are disposed of, as it will be too late to take action after a sale (or other disposal) has taken place.

Our Property, Tax and Commercial teams are available to assist in all such planning decisions, whether in the short, the medium or the long term.

For further information please contact:

Alan Barr 0131 656 0103 email alan.barr@brodies.com
Stephen Miller 0131 656 0346 stephen.miller@brodies.com
Iain Sime 0131 656 0233 iain.sime@brodies.com