Are you planning on disposing of your business in the foreseeable future? If so, it may be possible, with some basic tax planning, that you could save nearly a third of your capital gains tax bill on up to £5 million worth of gains.

On 22 June 2010, the Chancellor announced that the rate of capital gains tax was to be raised from 18% to 28% for individuals with total income and gains in excess of the basic rate band. However, at the same time, the lifetime limit on Entrepreneurs' Relief (which reduces the rate of capital gains tax for individuals to 10% in certain circumstances) was extended from £2 million to £5 million worth of gains.

This reduced rate is available on the sale of certain qualifying business assets and shares in a trading company. In the case of shares, the relief is available provided that, for at least 12 months prior to the date of disposal, the individual has (a) held 5% of the issued share capital (carrying 5% of the votes) and (b) been an officer or employee of the company (or a company in the same group).

It should be possible in many situations for shareholders, partners or members of an LLP, to take advantage of this relief, where it is currently unavailable, by ensuring that the requisite conditions are met. In the case of employees with small shareholdings, a simple re-organisation of the employing company's share capital may improve the position. Such planning has the potential to save up to £900,000 of tax, or indeed, double that if advantage can be taken of a spouse's lifetime limit. Care needs to be taken to ensure that other tax implications, such as employee taxes and inheritance tax, are properly considered. However, as the Entrepreneurs' Relief conditions need to be satisfied for at least one year prior to any disposal, the sooner any such planning is implemented, the better.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 16/07/2010.