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CGT reform, technology and wealth protection

Andy Morgan Andy Morgan

As the chancellor considers changes to the UK capital gains tax regime, Andy Morgan looks at the report that will inform Rishi Sunak’s next moves and what its recommendations may mean for wealth protection in the fast-growing technology sector.

The Office for Tax Simplification (OTS) has just released the first of two reports responding to the Chancellor Rishi Sunak's request to review capital gains tax (CGT). It follows on from last year’s report and recommendations on inheritance tax (IHT). There is now increased interest in its recommendations given the ongoing pandemic and its implications for the public purse, meaning that the chancellor is perhaps more likely to implement recommendations for reform as a way to raise taxes.

Any changes to CGT will likely have real implications for technology business owners and the need to protect wealth, in particular ahead of an exit event where value is realised.

OTS capital gains tax recommendations

Although the chancellor did not make any tax changes in his one-year Spending Review on 25 November, this situation may change in the full Budget in March 2021. 

There are two key areas of focus arising out of the recommendations of the OTS reports. While there is no ‘one size fits all’ approach to these, we have focused on the impact these recommendations could have on technology business owners and families wishing to protect and transform their wealth.

How CGT changes impact private wealth

There are a number of recommendations in the OTS report that would have a significant impact on wealth protection. These include:

  • increasing CGT rates to align with income tax rates
  • removal of the CGT base cost uplift to probate value on death
  • rebasing all capital assets such that the minimum base cost would be their value as at the year 2000
  • broadening of existing holdover reliefs such that non-business assets could be given away during their lifetime without triggering CGT.

There are also some key recommendations that would affect the transformation of wealth, such as:

  • any increase in CGT rates
  • to consider taxing earnings retained in owner-managed businesses to income tax rather than CGT, when they are realised as profits on a sale or liquidation
  • to consider taxing more share-based rewards and incentives at income tax rates.

How can technology businesses prepare?

These recommendations could have a profound impact on technology business owners, on both the timing and viability of strategies to protect private wealth and the impact on any future business disposal or liquidity events.

With many businesses in the technology, media, and telecoms (TMT) sector achieving fast-growth value creation since inception, it is vital to consider any impacts and actions now, ahead of potential CGT changes in 2021. Preparing thoroughly for a value realising exit event has never been more important and this will no doubt play a pivotal role in how any forthcoming tax measures potentially impact you and your shareholders.

If you are a shareholder or technology business owner that has seen significant growth in the value of your shares, now could be an opportune time to take stock of your personal and overall business objectives to ensure they continue to be met.

To find out more about wealth protection and transformation in technology, please contact James Healey.

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