Changes to BADR

[youcangetjules]

Hi all,

I have heard that the current proposal to change the current Business Assets Disposal Releif (Entrepreneurs Relief by its other name) from 10% to 20% in line with the normal Capital Gains rate is also recommended by the Office of Tax Simplification to increase further to the "Higher Rate" of personal income tax of 45%.
This effectively becomes a 70% tax rate as all of this is post payment of corporation tax which will soon be 25%. I have spoken to my accountant on this and he has said that yes this is aligns with his understanding as well.
Just wondering if anyone else knows/has any views on this. That effective overall rate should go from 35% (25% Corp + 10% BADR) to 70% (25% Corp + 45% high rate personal income tax) just seems unbelievable.

 

[Clinton]

BADR is not another name for ER, it's the new name for what used to be called ER.

The Office of Tax simplification can make whatever recommendations it wants, but that doesn't mean that it's likely to happen.

In any case, you don't pay this tax "post payment of corporation tax". You pay CT on profit, you pay CGT on capital gains when you sell the shares of the business. And you've got BADR of £1m (reduced from £10m) of a lifetime allowance to use against that.

There are ways to mitigate against both CT and CGT if you've got a good accountant. There are ways to construct the sale of a business to minimise the CGT liability (though the overall obsession shouldn't be about how much of tax you pay but how much money you get to take home - deal structures can be complicated).

 

[UK Contractor Accountant]

There are ways to mitigate against both CT and CGT if you've got a good accountant.

Yep go to a tax haven and live there.

IOM - no CGT I believe there

 

[youcangetjules]

BADR is not another name for ER, it's the new name for what used to be called ER.

The Office of Tax simplification can make whatever recommendations it wants, but that doesn't mean that it's likely to happen.

In any case, you don't pay this tax "post payment of corporation tax". You pay CT on profit, you pay CGT on capital gains when you sell the shares of the business. And you've got BADR of £1m (reduced from £10m) of a lifetime allowance to use against that.

There are ways to mitigate against both CT and CGT if you've got a good accountant. There are ways to construct the sale of a business to minimise the CGT liability (though the overall obsession shouldn't be about how much of tax you pay but how much money you get to take home - deal structures can be complicated).

Strictly speaking yes - it changed its name and is now indeed known as BADR - I still hear Entrepreneur's relief used all the time however. But hey - whatever.

I draw no current wage from the company, so in my case my statement holds correct. And yes there are CGT thresholds that apply but that doesn't reduce the amount by much.

I'd be interested in learning more about correct ways of structuring the setup so as I can legally be as efficient as possible here.

 

[youcangetjules]

Yep go to a tax haven and live there.

IOM - no CGT I believe there

Indeed there isn't - and yes I am thinking of moving there. I was in Douglas just a couple of months back - loved it. It looks like Bournemouth should be if they gave a damn. Brutal winters though I hear.

 

[fisicx]

Talk to your accountant. They will understand how your business is structured and be best placed to advise.

 

[youcangetjules]

Talk to your accountant. They will understand how your business is structured and be best placed to advise.

You'd have thought...

 

[Clinton]

I'd be interested in learning more about correct ways of structuring the setup so as I can legally be as efficient as possible here.

Then take a course in corporate finance. Deal structuring is not something you teach someone in a day or two!

If it's the sale of a really small business then there may not be much to it (structure-wise).

But in the mid-market space, it can get very complicated. I put some basics together in this article I wrote if you're interested (but please don't fill in the form there asking for my assistance on anything, I'm fully booked up and not taking new clients).

 

[AndreasC]

Don't be too concerned with what the OTS has recommended. They make lots of recommendations over the last decade or two which have never seen the light of day.

Though your effective tax rate of 35% (CT+BADR) is broadly right the 70% isn't. If you pay CT then that implies you are taking dividends which will be taxed from 8.75% to 39.35%. My friend said the same thing and I explained you can't just add the two rates together as the second lot is reduced by the first so the effective rate is lower i.e. you pay 25% on £100 (profits) but 8.75% on £75 (post CT monies paid as dividends).

A company is useful to shelter excess profits.

Other that upending and moving abroad the tax rates are what they are and your accountant can advise you on how to be tax efficient. It's what we do for our clients!