View more on these topics

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.


The Aussie example

The Government has so far rejected introducing further compulsion into its pension policy. Instead, it has opted for the tactics of encouragement and incentive.There are clearly doubts over whether the current strategy will be successful – stakeholder pensions are not being bought by the target group and the pensions credit will be too complex to […]

Scottish Mutual backs FSA&#39s big issue on with-profits disclosure

The latest FSA with-profits issues paper is pushing at an open door, says Scottish Mutual.The life office says providers already accept there are big problems with consumer understanding and confidence about with-profits products.It says many of the proposals suggested in the FSA paper, Disclosure to Consumers, were originally raised by the ABI several months ago. […]

Ownership move by Brain sparks competition fears

Mortgage Brain&#39s move to hand its ownership to a limited number of lenders has stoked fears that it could restrict competition in the market.The platform, which is also set to announce its new chief executive in “days or weeks rather than months”, says in two years the consortium of lenders will own 100 per cent […]

Hargreaves&#39 Dampier defends polarisation

Investment IFA Hargreaves Lansdown has issued a detailed criticism of the regulator&#39s proposals for the abolition of polarisation saying the proposed system is nothing but one big loophole.The IFA believes that the current system is working on the whole. Head of research Mark Dampier points out that most of the problems, in particular Equitable, have […]

Benefits of using a probate bare trust

Have you ever wondered what happens to someone’s investment bond on their death if it is not written in trust? When someone dies it is essential to deal with their estate, which can be made up of their home, belongings, investment bonds and anything else they may have owned. But, it is not as simple […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm