Capital Gains Tax
The headline change to CGT announced by the Chancellor was in relation to sales of company shares to Employee Ownership Trusts (EOTs).
EOTs were introduced in 2014, allowing owners of trading companies to benefit from full CGT relief where a controlling interest was sold to an EOT (the relief is strictly only a deferral as the inherent capital gain is ‘held over’ such that the trustees of the EOT acquire the shares at a cost equivalent to that of the vendor for CGT purposes). The EOT then holds the company shares for the benefit of the company’s employees.
Following increases to CGT rates, EOTs have become an increasingly popular option for business owners looking for an exit strategy, given the potential for realising the value in their company shares without any CGT liability.
From today, 50% of the gain realised on a disposal to an EOT will be immediately subject to CGT (with the remaining 50% of the gain deferred). It is important to note that Business Asset Disposal Relief will not be available where the 50% relief has been claimed on a sale to an EOT, meaning the CGT rate applicable to the 50% of the gain which is taxable will be 24% in most cases (i.e. an effective overall rate of 12%).
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