Taper relief withdrawn

[Alan @ BroomeAffinity]

Anybody planning to close down their company and extract the capital with maximum CGT taper relief better get busy as Darling has withdrawn taper relief and replaced it by a single 18% CGT rate. Its unclear when this will kick in but expect to see huge capital offloads in the not-too-distant!

[mace]

Can you explain why you'd get capital gains tax relief on money you extract from your business when you close it. Most contractors haven't got much in the way of assets within their company.

[dude69]

see my post at 17:04.....

[Hiram King Of Tyre]

Is all CGT moving to 18%?

[Alan @ BroomeAffinity]

Can you explain why you'd get capital gains tax relief on money you extract from your business when you close it. Most contractors haven't got much in the way of assets within their company.

A lot of contractors keep a certain element of reserves in the company and use the taper relief as an extremely attractive way of getting money out: If you keep £30k of profit in the business for 3 years you can withdraw the £90k as capital returns ant get full taper relief at 75% and only pay tax on £22.5K. If you are a hogher rate taxpayer the effective tax rate is 10% but remember you'll already have paid 19% CT on this so the true rate is 29% which beats 40%.

Yes - all CGT is now at 18%. I gues ther'll still be an annual exemption but I don't know.

[TheFaQQer]

Is all CGT moving to 18%?

Yes

[mace]

A lot of contractors keep a certain element of reserves in the company and use the taper relief as an extremely attractive way of getting money out: If you keep £30k of profit in the business for 3 years you can withdraw the £90k as capital returns ant get full taper relief at 75% and only pay tax on £22.5K. If you are a hogher rate taxpayer the effective tax rate is 10% but remember you'll already have paid 19% CT on this so the true rate is 29% which beats 40%.

Yes - all CGT is now at 18%. I gues ther'll still be an annual exemption but I don't know.

Must admit I didn't know a lot of contractors were closing their businesses every 3 years. Of course, you'd have to be between contracts to do that. Also it's debatable as to whether you'll have made more money extracting the cash and investing it in the stock market.

[dude69]

A lot of contractors keep a certain element of reserves in the company and use the taper relief as an extremely attractive way of getting money out: If you keep £30k of profit in the business for 3 years you can withdraw the £90k as capital returns ant get full taper relief at 75% and only pay tax on £22.5K. If you are a hogher rate taxpayer the effective tax rate is 10% but remember you'll already have paid 19% CT on this so the true rate is 29% which beats 40%.

CT is 20% now, going up to 22% soon.

And the rate is less than 29% (actually it's 1 - 0.8 * 0.9 = 28%), because you get to take £9,200 off the amount for your annual allowance. So it works out at about 27% on £100k, compared with 40% via higher rate tax route (which is going up, because the CT rate, 22%, will be HIGHER than the Income Tax imputed (20%) - so actually rate will be 41.5%). In future (at £9,200 allowance and 22% CT), the tax on £100k distributed via winding up would be about 34.5%.

Yes - all CGT is now at 18%. I gues ther'll still be an annual exemption but I don't know.

There is, it will be the same, it's in the budget document. Just no taper relief.

[Hiram King Of Tyre]

I assume that Taper Relief will still apply to AIM listed shares held over 2 years?

[mace]

Still not convinced that the money that you save in tax by leaving the cash in a poor interest paying business account will be better than if you extracted the money and put it in the stock market. As others have said, you can't close down your business every 3 years or else HMRC won't be happy. If you leave retained profit in for 10 years, I'm extremely doubtful that you'd be better off leaving it in the business.