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Taper chase

One of the biggest pieces of news in the Budget had to be the capital

gains tax reforms affecting business owners.

The relaxation to the rules on CGT taper relief for disposals of business

interests will be of tremendous interest to business owners and their


The new taper relief for business assets reduces the period of ownership

after which full relief is given from 10 years to four years. The bonus

year is disposed of, so years of ownership will be counted from the actual

date of acquisition or, if later, April 6, 1998.

There is little doubt that, for many, this new relief will be a tremendous

improvement on retirement relief, which is being phased out. A most obvious

category of advantaged business owners will be those who would not have

qualified for retirement relief in any event by virtue of being too young.

Despite this, until retirement relief is phased out, it will be worth

reviewing the possibilities for anyone who still qualifies for the relief

to see if it is worth rebasing their acquisition value. Of course, by doing

this, there will be a loss of qualifying years for taper relief. Each case

will depend on its own facts. As they say, it will be necessary to do the


Turning back to taper relief, there will be many contemplating a sale of

their business who may be a little confused regarding the application of

taper relief to them.

For straightforward cash sales, the disposal will trig- ger a cessation of

the taper period although, at the moment, no longer than a two-year period

from 1998 could have been accrued.

Tax deferment through loan notes may be possible but, if these notes

constitute qualifying corporate bonds, then it will not be possible to

continue taper relief. Even if appropriate securities are issued, then,

apart from the possible risk of exposure to a single share, there are other

important conditions to fulfil before the taper relief period can be

extended, say, until 2002.

Then there are any earn-out provisions. Here again, it would be very easy

without careful planning to fall into a big tax trap with the result that

no further taper relief is available. Clearly, the new provisions decree a

careful read.

Despite the improved taper relief, I believe it is essential that business

owners are not lulled into a false sense of tax and commercial security

about tax-minimised capital realisation on the sale of their business. It

would be unwise to rely on it to the exclusion of all other planning.

Funding for future financial security in an environment where there is no

cer- tainty of realising capital sums for one&#39s business (even a dotcom

business) means that regular savings, whatever the wrapper, must be well

worth investigating.

The reduction of the basic rate of income tax to 22 per cent from April

6, 2000 should also act as a catalyst for financial advisers to contact

their business clients.

Pension contributions made by basic-rate taxpayers in 2000/01 and relieved

in that year will qualify for 22 per cent relief. However, if the cont-

ributions are carried back, the payer will secure relief at 23 per cent.

The abolition of Miras from April 6, 2000 should act as a catalyst to all

advisers to private companies and partnerships to review any credit balance

loan accounts or capital accounts that may exist in favour of shareholders

or partners. In such circumstances, it may be possible for the loan to be

repaid and the funds released to extinguish any non-qualifying borrowing.

If further sums are needed for business purposes, it may be possible for

the shareholder to borrow (maybe from the same lender) on the security of

his property to lend to the business.

If the purpose of the borrowing is to lend to a private business in which

the lender has an interest and in which he works, and where the business

uses the money borrowed for a business purpose, tax relief should be


So, all in all, in a Budget generally accepted by the cognoscenti to be,

at best, uninspiring, there are plenty of reasons to contact business

clients with a view to reviewing and adjusting planning structures. In some

cases, there may even be some tax savings to be made.


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