Right advice can help you keep more of your money
Oct 15 2008 By Paul Christian
MAKING money from business is not an easy task, especially in the current economic climate.
However, as those companies in the Fastest 50 have shown, with hard work, drive and dedication it is achievable.
But once you have made money, how can you ensure that you keep hold of it?
Changes in the tax system affecting the buying and selling of businesses led to a flurry of deals in the early part of 2008.
This was because the Chancellor decided to change the system of capital gains tax relief on business sales – which typically meant that most business owners paid 10% tax on the proceeds of any disposal – to introduce a flat rate of 18% from April.
This led many business owners to decide to sell up before the April deadline so as not to almost double their tax bill from the proceeds of a disposal.
The Chancellor did backtrack slightly to introduce so-called entrepreneurs relief. This reduces the effective rate of tax on the first £1,000,000 of any sale gain to 10%.
However, you need to make sure that you qualify for entrepreneurs' relief, otherwise you will still have to pay the full 18% on all proceeds.
The relief applies to assets of a trade or shares in a trading company. For shares to qualify, the shareholder needs to have shares representing at least 5% of the ordinary share capital and the voting share capital and the taxpayer has to be an officer or employee of the company. This condition has to be satisfied for at least a year before the disposal.
In addition, the £1,000,000 is a lifetime limit rather than a limit per transaction, but there are ways to maximise the relief. You could transfer a proportion of shares to your spouse. If both the owner and his wife or her husband have held the required shareholding for at least a year, each should qualify for entrepreneurs' relief, increasing the 10% band to £2,000,000.
Other members of the family could be introduced to extend the band further, but all this needs some planning. There is no point trying to transfer shares just before they are sold as the one-year holding requirement will not be met.
With the right advice, entrepreneurs such as those running the Fastest 50 companies can get to keep more of what they have worked so hard for.
As well as advising on aspects of corporate tax, we at Ward Hadaway also have extensive experience of all facets of personal tax, trusts and wills to ensure that fast-growing companies and those behind them can plan for the future with confidence.
For further information on any of the topics raised by this article, please contact Paul Christian at paul.christian@
wardhadaway.com or call him on (0191) 204-4281.
