Opportunities for entrepreneurs in 2010’s raft of tax changes

Wednesday, December 29, 2010 | Posted by: Fiona Cullinan
Categories: Business advice, Tax | Tags: tax, entrepreneurs, investment, capital gains tax, CGT, wealth, relief, EIS, partnership, Craig Kemsley, creation, ER, Enterprise Investment Scheme, Entrepreneurs’ Relief

A summary of recent tax changes affecting UK entrepreneurs – and the opportunities they afford for wealth creation – by Craig Kemsley, Tax Partner, Grant Thornton.

Recent tax changes to capital gains tax (CGT) have created new opportunities for entrepreneurs. Tax has a significant role to play in wealth creation for entrepreneurs and investors, regardless of the scale of their growth aspirations or their investment objectives.

Broadly speaking, capital gains realised after 22 June 2010 are taxed at a flat rate of 28% for higher rate taxpayers. Despite the increase, the higher rate of CGT is still less than the maximum 40% rate charged on disposals made by higher rate taxpayers before 6 April 2008 and the current top rate of income tax of 50%.

The good news for entrepreneurs is that the lifetime limit for capital gains qualifying for Entrepreneurs’ Relief (ER)has been increased to £5 million so the value of the relief could be as much as £900,000. Entrepreneurs’ Relief may be available on the disposal of shares in a trading company where, in the prior 12 months, an individual is an employee of the company and holds a minimum of 5% of the ordinary share capital and voting rights.

Entrepreneurs should seek advice in order to maximise the application of ER,which in some cases might be best achieved through a Limited Liability Partnership.

From an investment perspective, a number of changes have been announced in relation to the 20% tax relieffor investments in Enterprise Investment Scheme (EIS) companies. To come into line with European law, a company will, from a date to be announced, qualify under the EIS scheme if it operates through a permanent establishment in the UK. This is a significant relaxation of the current requirement that the company’s trade is carried on wholly or mainly in the UK. This may well open the door to exciting new opportunities for those looking to make tax-efficient investments.

The information provided in this article originally appeared in Elevate magazine, which is available as a free download.

It has been prepared as a topical guide only. It is not a substitute for full professional advice, and specialist assistance should be sought in relation to any particular circumstances. Contact the tax specialist in your local Grant Thornton office or read more on our Tax for Entrepreneurs pages.

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