Maximizing Small Business CGT 90 Benefits: Tips and Strategies
Capital Gains Tax (CGT) 90 is a tax relief scheme that seeks to support small businesses in the UK. Under this scheme, qualifying small businesses can claim a 90% reduction in their capital gains tax bill when they sell assets, shares, or property. However, navigating the scheme and making the most of it can be tricky. In this post, we’ll explore some tips and strategies that small business owners can use to maximize their CGT 90 benefits.
Understanding CGT 90
Before diving into the tips and strategies, let’s first understand what CGT 90 is and who qualifies for it. CGT is a tax on the profit made when selling something that has increased in value, such as shares, property, or business assets. The CGT 90 scheme provides small business owners with a 90% reduction on their CGT bill when they sell business assets or shares.
To qualify for the scheme, your business must be a UK-based company or a permanent establishment of a non-UK company. Furthermore, your business must have gross assets of no more than £20 million and employ fewer than 250 people. Additionally, the asset or shares sold must have been owned for a minimum of 2 years.
Tip 1: Plan in Advance
One of the most critical aspects of maximizing CGT 90 benefits is planning ahead. Business owners should factor in the 2-year ownership requirement when considering the sale of their assets or shares. Businesses planning to sell their assets or shares in the next few years should consider the timing of the sale. By holding onto the asset for an additional period, businesses can increase their eligibility for the CGT 90 scheme. Pre-sale planning can also help businesses align the timing of the sale with their financial goals.
Tip 2: Keep Good Records
To qualify for the CGT 90 scheme, businesses must be able to provide evidence of the ownership of assets or shares. Thus, keeping good records is crucial for smooth and successful CGT 90 applications. Business owners should maintain financial records for the assets or shares that they plan to sell. Additionally, they should ensure that these records are up-to-date and clearly show the dates of acquisition and disposal.
Tip 3: Consult with Professionals
Navigating tax laws and schemes can be confusing, and mistakes can be costly. Business owners should consider consulting with professionals like accountants and tax advisors. These professionals can provide valuable advice on CGT 90 and help businesses maximize their benefits. They can also assist in compiling necessary documentation and ensure that all requirements are met.
Strategies for Maximizing CGT 90 Benefits
Beyond the tips mentioned above, specific strategies can help maximize CGT 90 benefits. These include:
Strategy 1: Sale of Assets
Under the CGT 90 scheme, businesses can benefit from the sale of assets that have increased in value over time. Business owners should consider identifying which assets have a higher capital gain and consider selling them. By selling assets that have a higher capital gain, businesses can take advantage of the 90% CGT reduction.
Strategy 2: Reinvestment
Another strategy for maximizing CGT 90 benefits is reinvestment. After the sale of qualifying business assets or shares, businesses can reinvest the proceeds into new qualifying assets. By doing this, businesses can defer the payment of CGT and enhance their eligibility for the CGT 90 scheme in the future.
Strategy 3: Employee Ownership Trusts (EOTs)
Finally, businesses can also consider employee ownership trusts (EOTs) as a strategy for maximizing CGT 90 benefits. In EOTs, businesses can transfer ownership to a trust, which then holds shares on behalf of employees. This strategy can provide a beneficial tax structure for the business and its employees.
Conclusion
The CGT 90 scheme provides small businesses with a chance to reduce their CGT bill substantially. However, navigating the scheme and making the most of it can be challenging. By planning ahead, keeping good records, seeking professional advice, and applying the strategies mentioned in this post, businesses can maximize their CGT 90 benefits.
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