There is widespread speculation that the new England Political Manager, Andy Burnham, will look to make further changes to the capital gains tax regime. Measures which are being speculated on include a CGT exit tax on leaving the UK and equalising CGT rates with income tax rates.

If for example, you compare a sole trader who earns £1m a year as income, the effective tax rate (including NI) is approximately 46%. If the business owner was able to sell this business for £1m then the effective CGT rate would be 18-24%. Receiving funds as a capital is materially cheaper than receiving the funds as income.

Compare this to a business owner who trades via a limited company who looks to sell the company’s goodwill for £1m and then place the company into a solvent liquidation. The company suffers corporation tax on the £1m gain and the business owner pays the CGT on the distribution meaning that the overall tax rate paid by the company and business owner will be 38%-43%.   

Trying to reform CGT and equalise income tax rates with CGT rates is a minefield. If you have any clients who are considering retiring or selling their businesses and are looking to liquidate their companies, it may be worth commencing the process sooner rather than later.