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Winning post

With the approach of the end of the tax year, many tax planners will quite likely be focused on actions that should be taken by their clients ahead of April 5. I will look at some of the more widely applicable of these in future articles.

But it may be worth planners looking beyond April 5 and targeting the potentially substantial amounts that may be available for investment after that date.

Why might such sums become available? Well, from April 6, 2002, disposals of business assets, most obviously shares in trading companies, that have been owned for a minimum period of two years can qualify for full taper relief (provided the relevant conditions are fulfilled) which will generate a 75 per cent reduction in the chargeable gain. Yes, 75 per cent.

As most of you will be aware, what this means for a higher-rate taxpayer, as most disposers will be, is that capital gains tax will only be charged at an effective rate of 10 per cent. For example, if a capital gain of £500,000 were made on a business asset disposal and full business taper relief were available, the chargeable gain would be reduced to £125,000. Ignoring any annual exemption that may be available, the amount of capital gains tax payable at 40 per cent on that gain would be £50,000. Expressed as a percentage of the £500,000 gain, this is 10 per cent.

Now, attractive as this relief is, one cannot always order one&#39s commercial life to deliver the most advantageous tax outcome. This will be especially true in the cut and thrust of disposal and acquisition. This is not to say that a buyer will not be sympathetic to the personal tax planning objectives of the seller, just that the tax outcome on the sale proceeds is likely to be more important to the seller than the buyer.

This issue will not, however, be a complete non-event for the buyer. After all, if the buyer is aware that a particular aspect, such as the timing of purchase, is important to the settlor, it may well be that, as part of the bargaining process, the buyer plays ball on the timing of the acquisition in return for some issue that benefits him, the most obvious one being price.

If the price is reduced to take account of an improved tax outcome for the disposer, then, in effect, the buyer is sharing in the benefit of the tax relief. This outcome is not dissimilar to the situation where the price of an asset, the purchase of which generates tax relief, is increased above what it normally would be to reflect this. Classic examples include BES investment (from the past), EIS investment and, of course, properties in enterprise zones.

As we near T (for taper) day on April 6, the appetite of disposers to enter into relatively complex and sometimes costly arrangements to defer CGT may understandably wane. Indeed, now that the qualifying holding period for business assets taper relief is only two years for disposals after April 5, 2002, the purveyors of deferment schemes may have slightly less takers. However, there may well be other reasons for deferring a disposal for tax purposes and so, for those for whom this objective is relevant, arrangements that legitimately achieve this will still be worth looking at.

For those for whom obtaining maximum taper relief is relevant and where the commercial circumstances permit it, a post-April 5 disposal can then pay real dividends. However, it is important to remember that everything can turn on the time when the parties enter into the contract for sale. It is essential that no binding contract is completed before the desired date of disposal and any heads of agreements must be strictly conditional and subject to contract. Very careful drafting and specialist professional advice is absolutely necessary. With the level of tax saving at stake, the cost of experienced advice will be money well spent.

For financial advisers who have relationships with accountants, ascertaining if there are any pent-up business sales that will take place post-April and which could yield substantial sums for investment by the disposing business owners may be an enquiry well worth making.

Given the likely conversion of assets qualifying for business property relief to cash/investments as a result of the sale, a review of inheritance tax planning sooner rather than later might also be worthwhile.

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