Succession planning – putting right a 2015 wrong

Succession planning – putting right a 2015 wrong

Wed 16 Mar 2016

Shareholders also owning assets personally qualify for the reduced CGT rate of 10% when disposing of those assets alongside a disposal of their shares as part of a withdrawal from the business.

Legislation introduced in Budget 2015 unintentionally removed this treatment in respect of the gain on the asset where the share disposal was to family members (for example on a genuine succession by the next generation).

This unintended effect has now been put right with new legislation to be backdated to 2015 so that the 10% tax rate applies to the asset disposed of.

A shareholder disposing of shares in a ‘personal trading company’ may qualify for Entrepreneurs’ Relief (ER) and a 10% rate of tax on the capital gain arising on that disposal.  Where there is also an associated disposal of assets held personally by a shareholder, this can also qualify for Entrepreneurs’ Relief.  So shareholder who personally holds the premises from which the company trades, and sells his shares and the premises together, can qualify for ER on gains both on the shares and the premises.

Prior to 2015, there was no minimum requirement for the shareholding that had to be disposed of in order for an asset disposal to also qualify for ER.  The perceived mischief was that premises held personally could be disposed of to a third party, and if this was accompanied by, say, a disposal of a 1% shareholding to a family member, the asset disposal qualified for ER.

To combat this, for disposals from 18 March 2015, Budget 2015 removed ER for gains on asset disposals in cases where a less than 5% shareholding was being sold, and also in cases where there were arrangements under which a person connected with the vendor acquired shares in the company.   This affected a genuine succession, where for example a shareholder passed shares and personally held premises to the next generation – whilst the share disposal qualified for ER, the impact of Budget 2015 meant that the asset disposal did not.

Budget 2016 has tackled this, and new legislation will be introduced to ensure that in a situation such as this, ER will be available both in respect of the disposal of the shares and the associated disposal of the asset.  This will be backdated to 18 March 2015 so that the unintended consequences of Budget 2015 will never have effect.

Author: Graham Odlin


Leave a Reply

Your email address will not be published. Required fields are marked *