Tax Professional usually responds in minutes
Our tax advisers are all verified
Unlimited follow-up questions
For many entrepreneurs, a share sale represents the culmination of years of hard work and perseverance.
Naturally, they will want to ensure that as much of the reward as possible ends up in their hands, minimizing the tax bill on the disposal of their business.
It’s crucial for those selling shares in their business to consider whether Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief, will be available.
BADR can reduce a seller’s capital gains tax rate to 10% (down from the usual rate of 20%) on the first £1 million of their lifetime qualifying capital gains, potentially saving up to £100,000 in taxes.
It’s important to understand how to utilise this relief and avoid potential pitfalls.
BADR may be available on the disposal of shares (or securities) of a trading company (or the holding company of a trading group) if the seller has, for the two years leading up to the disposal, satisfied each of the following:
In respect of the two “5% tests” above, they do not apply if the shares being sold were acquired after 5 April 2013 under an EMI option.
In such cases, the EMI option must have been granted at least two years prior to the date of disposal of the shares. If so, there is no minimum shareholding nor any minimum holding period in respect of the shares themselves.
While this article primarily focuses on the applicability of BADR on a share sale, BADR may also be available for the disposal of the whole or part of a business carried on by a sole trader or in partnership.
Given that the conditions detailed above must be satisfied for the entire two-year period prior to the disposal of the business, if you intend to sell your business at any point in the next few years, we recommend instructing an adviser to review your eligibility for BADR relief and planning for BADR compliance sooner rather than later.
Even after establishing a BADR-compliant structure, it’s important to keep these conditions in mind until the business is sold to ensure this valuable relief is not lost.
BADR will not apply automatically upon a sale, even if a seller meets the required conditions. It must be claimed on an individual’s tax return on or before the first anniversary of the 31 January following the tax year in which the share disposal occurs.
For a share disposal in the tax year 2024-2025 (ending on 5 April 2025), a claim must be made by 31 January 2027.
Failure to comply with the conditions outlined above throughout the two-year period leading up to the payment of sale proceeds can result in the loss of the relief. Common pitfalls include:
Issuing new shares during fundraising which dilute existing shareholders such that they no longer satisfy the 5% tests. Elections can be made to claim BADR up to the date of dilution, but it is preferable to ensure that BADR applies up to and including the point of sale.
Exercising share options in advance of a sale without considering their impact on existing shareholders’ ability to satisfy the 5% tests.
Failing to realize how differential share rights can affect the availability of the relief, such as other investors having a preferential return on a sale.
Not considering how BADR will apply in complex consideration structures (e.g., where shares are exchanged for other shares or loan notes or there are deferred/contingent consideration arrangements like earn-outs). The timing of relevant tax charges may be delayed, and BADR conditions may no longer be satisfied at such a later time.
Failing to claim BADR by the relevant deadline.
Given the value of this relief and the potential pitfalls which can prevent its application, it is crucial to work with advisers who understand the BADR rules, both well in advance of, and during, the sale process.
If you have any queries about this article on Business Asset Disposal Relief (“BADR”), or UK tax matters in general, then please get in touch.
In a move to revamp its fiscal approach, Canada’s Budget 2024 proposes significant changes to how capital gains are taxed under the Income Tax Act.
The budget proposes to increase the capital gains inclusion rate from one-half to two-thirds.
For individuals, this increased rate applies to capital gains exceeding $250,000 in a year. For corporations and trusts, the new rate applies universally.
The $250,000 threshold for individuals will consider net calculations, accounting for current-year capital losses, carried forward or back losses, and gains where specific exemptions like the Lifetime Capital Gains Exemption have been claimed.
Net capital losses incurred under the previous one-half inclusion rate can still offset gains after the rate change, ensuring losses retain their full offsetting value.
To align with the new inclusion rate, adjustments will be made to the stock option deduction rules.
The available deduction will remain at one-half for combined capital gains and employee stock options up to $250,000, reducing to one-third beyond this limit.
The new regime will apply to gains realized on or after 25 June 2024.
Special transitional rules will help manage gains and losses across the changeover period, particularly for taxation years that span the implementation date.
The changes challenge the principle of integration in Canada’s tax system by potentially disincentivising the use of holding corporations for investment purposes due to the lack of a $250,000 exemption for such entities.
There is no distinction between residents and non-residents in the application of these rules, suggesting potential amendments to the withholding tax rate on non-residents disposing of taxable Canadian property.
The government anticipates additional federal revenue of approximately $19.4 billion over five years, with provincial revenues potentially increasing by $11.6 billion. The bulk of this is expected soon after implementation, indicating an anticipated rush by taxpayers to realize gains before the new rules take effect.
It remains unclear if the $250,000 exemption for individuals will be indexed for inflation, which could gradually erode its real value over time.
Taxpayers should consider whether to accelerate transactions to realize gains before the June 25, 2024 effective date.
Additionally, the strategic use of loss carrybacks or reserves could be beneficial, especially if these can offset higher-taxed gains post-change.
Businesses and individuals should also re-evaluate the holding structures for their investments, potentially moving away from corporate vehicles to more tax-efficient entities like limited partnerships or direct holdings.
Budget 2024’s proposed changes to capital gains taxation represent a significant shift in Canada’s tax landscape.
While aiming to generate substantial revenue, these changes pose new challenges and planning opportunities for taxpayers.
As the government has yet to release detailed implementing legislation, ongoing vigilance and flexibility in tax planning will be crucial for all affected parties.
If you have any queries about this article on Changes to Canadian Capital Gains, or tax matters in Canada more generally, then please get in touch.
If you are a tax adviser – whether from a legal or accountancy background – then we would love to discuss how you can become one of our ranks of Tax Natives.
All you need is your local tax knowledge of Canada and any other regions!
For more information please see here or get in touch.
In a time of increasing financial strain due to the European Central Bank’s (ECB) continuous interest rate hikes, families are feeling the pinch.
So many people will be turning to that even more esteemed bank. The Bank of Mum and Dad!
In some scenarios, this doesn’t just mean cash hand outs. It might also mean gifting properties to children (or indeed other family members).
But how can property be gifted in Spain without attracting high taxes?
Gifting property in Spain is becoming a popular way for parents, spouses, and family members to support their loved ones without incurring excessive taxes.
This practice has gained traction as several regions in Spain, including Andalucia, Madrid, and Galicia, have implemented tax laws that significantly reduce or eliminate inheritance and gift taxes.
Gifting property or money occurs in various scenarios:
The Donor and the donee should be aware of the potential tax liabilities involved:
This tax applies if the property’s value has increased since you acquired it.
The capital gain is calculated by subtracting the purchase price and related costs from the property’s value at the time of gifting.
You will be taxed on this gain at a rate of 19% (or 24% if you’re a non-resident donor from outside the EU).
This is a local tax levied by the municipality on the increase in the land value of the property since it was last acquired.
The rate and rules for calculating Plusvalía Tax can vary depending on the specific location of the property.
Spain has a national gift tax, but rates are set by individual regions (Autonomous Communities).
In some regions, there can be significant exemptions for gifts to close relatives, such as children or spouses.
For instance, some regions offer a nearly zero tax rate for gifts between parents and children.
It’s important to research the specific tax rates that apply in the region where the property is located.
Besides taxes, there are additional expenses to consider, including lawyer’s fees, notary fees, and land registry fees.
To ensure a smooth and tax-efficient transfer, it’s crucial to retain a lawyer from the beginning. The gift deed must be prepared and witnessed by a Spanish notary.
Proper planning is essential, as failing to follow the correct legal procedures can lead to a significant tax burden.
For joint property owners seeking to re-arrange their holdings, a DJPO can be an effective alternative, reducing taxes by up to 86%.
It applies in situations like divorce, re-arranging inheritances, and property re-organization among family and friends.
Gifting property can be an excellent way to help loved ones while minimizing tax obligations.
To avoid high taxes and ensure a smooth legal process we would certainly recommend tapping into local expertise
If you have any queries about this article on gifting property in Spain and tax, or other Spanish tax matters, then please get in touch.
The UK government mandates reporting and payment of Capital Gains Tax (CGT) within 60 days of disposing of non-primary residential properties.
This guide explains the essentials of this rule, which has been in effect since April 2020.
Initially known as the “CGT 30-Day Rule,” the timeframe for reporting CGT was extended to 60 days in October 2021.
This rule applies when you sell, gift, or transfer a residential property that isn’t your main residence.
Not all property disposals require reporting under the 60-day rule. Key exemptions include sales of your main home.
However, disposals of second homes, holiday properties, HMOs, and buy-to-let or buy-to-sell properties must be reported.
Non-UK residents are also subject to the 60-day reporting requirement for any residential property disposal within the UK, regardless of profit or registration for self-assessment.
The gain calculation involves subtracting the purchase price from the sale proceeds or fair market value, deducting allowable expenses and the annual tax-free allowance, then applying the appropriate CGT rate based on your income level.
You’ll need to register for HMRC’s online services to report the gain and pay any CGT due. This process is essential for compliance and avoiding potential penalties.
If you’re already completing a self-assessment return, you must declare the disposal and gains therein.
Otherwise, fulfilling the 60-day CGT reporting requirement suffices, eliminating the need for a separate self-assessment.
Missing the 60-day deadline can result in penalties and interest charges on the overdue CGT.
Immediate reporting, even if late, is better than non-compliance.
You may appeal penalties or request mitigation for delays due to valid reasons such as illness or bereavement. Providing evidence and explanations is crucial for a successful appeal.
The countdown starts on the property’s completion date, marking the legal transfer of ownership.
Accurate record-keeping of this date is vital for determining the reporting deadline.
The 60-day CGT reporting rule requires awareness and timely action to avoid penalties.
While the process may appear daunting, understanding your obligations and seeking professional advice can ensure compliance and minimize tax liabilities.
If you have any queries about this article on the UK’s 60-Day CGT Reporting for Residential Property Sales, or any other UK tax matters, then please get in touch.
Tanzania’s property sector has witnessed significant legislative reforms aimed at modifying the tax framework for premium payments on land and capital gains from property transactions.
These modifications are encapsulated in the Land (Fees) (Amendment) Regulations Government Notice (GN) No. 448C of 2023, also known as the Land Amendment Regulations 2023, and the Finance Act No. 2 of 2023, which amends the Income Tax Act [Cap 332 R.E. 2019].
These changes reflect Tanzania’s ongoing efforts to streamline property-related transactions and tax obligations, fostering a more transparent and efficient real estate market.
In Tanzania, obtaining a granted right of occupancy (GRO) over land involves the payment of a premium.
The determination of this premium takes into account several factors, including land use, market value, government auction prices, and assessments by registered valuers.
The evolution of the premium rate has seen a substantial decline from 15% between 2010 and 2015 to a mere 0.25% in 2023.
This reduction aims to alleviate the financial burden on landholders and stimulate property development and investment within the country.
The rate for premium payments in regularized urban areas has also seen adjustments, with the initial rate set at 1% in 2018 and subsequently reduced to 0.5% in 2021.
This scaled-down approach towards premium rates highlights the government’s initiative to make land ownership more accessible and affordable to the public.
Failure to comply with premium payment schedules is treated as a breach of the GRO conditions, which may lead to the revocation of occupancy rights, emphasizing the importance of adhering to these financial obligations.
The taxation of capital gains from property dispositions is another critical area of reform.
Historically, the Income Tax Act required resident individuals to pay a 10% tax on gains, while non-residents were subject to a 20% rate.
The introduction of the Finance Act 2023 marks a significant shift by setting a uniform capital gain tax rate of 3% on the incomings or approved value of the asset, targeting resident individuals without cost records of their assets.
This revision is intended to simplify and expedite the process of property transactions, reducing the protracted negotiations with the Tax Revenue Authority (TRA) over the property’s cost.
While this may streamline the transaction process, it also raises concerns about potential increases in tax liabilities, given that the taxation is applied to receipts or approved values without confirming the actual costs incurred.
These legislative amendments signal Tanzania’s commitment to reforming its property taxation framework, aiming to create a more conducive environment for real estate development and investment.
By lowering premium rates and adjusting capital gain tax rates, the government seeks to encourage property ownership and development, especially in urban areas.
Stakeholders must navigate these changes carefully, considering the potential implications on tax liabilities and compliance requirements.
As Tanzania continues to refine its property tax regime, it is essential for property owners, investors, and developers to stay informed and seek professional advice to ensure compliance and optimize their tax obligations in this evolving landscape.
If you have any queries on this article on Tanzania’s property tax changes, or Tanzanian tax in general, then please get in touch.
Business Assets Disposal Relief (“BADR”), formerly known as Entrepreneurs Relief, is an important relief in the UK tax system.
The relief offers significant savings (though not as significant as it once did!) on capital gains from the sale of qualifying businesses.
BADR is primarily accessible upon the sale of shares in a private trading company, assuming specific conditions are met.
A fundamental criterion is the notion of the “personal company.”
This concept encompasses individuals who have been directors or employees holding a minimum of 5% of the company’s shares for at least two years leading up to the sale.
Notably, before 2019, the required holding period was one year.
The scope of BADR also extends to trustees, particularly when dealing with life interest trusts.
Here, the relief is applicable if the trustees sell shares in a company that is the personal company of the life tenant — the beneficiary entitled to the trust’s income.
The catch, however, lies in meeting the personal ownership requirement of 5% of the shares by the life tenant.
The stringent nature of BADR’s conditions was starkly highlighted in the First Tier Tax Tribunal case of Trustees of the Peter Buckley Settlement v HMRC.
Here, in tax year 2015-16, the settlement lodged a claim for Entrepreneurs’ Relief (ER), now BADR, on the disposal of a solitary share in Peter Buckley Clitheroe Ltd (PBCL) dated 8 November 2015.
PBCL acted as a trading entity with Peter Buckley (PB) serving as a director from its inception until 9 November 2015.
The company’s equity was comprised of one Ordinary voting share initially allocated to PB but subsequently transferred to the settlement on 9 September 2012.
In January 2018, HMRC initiated an inquiry into the settlement’s ER claim and, by May 2021, issued a Closure notice.
This notice rejected the settlement’s ER claim and imposed an additional Capital Gains Tax (CGT) liability of £251,280.
HMRC contended that to legitimately claim ER on the share sale, PB was required to personally possess a minimum of 5% of PBCL’s shares for a year within the three-year period preceding the settlement’s share disposal, a criterion that was unfulfilled since the sole PBCL share was in the settlement’s possession since 2012, not in PB’s personal capacity.
The trustees appealed to the First Tier Tribunal (FTT).
The FTT established that PB, in his capacity as a trustee of the settlement and not as an individual owner, held the sole PBCL share.
The trustees, despite having the authority to terminate the settlement in PB’s favor, did not execute this before 8 November 2015.
Consequently, the PBCL share was invested in the settlement immediately before its sale.
Given that PB did not personally own the PBCL share as mandated by s169S(3) TCGA 1992, HMRC’s rejection of the ER claim was justified.
The tribunal underscored that the legislative intent was clear: to qualify for ER, PB had to personally hold at least 5% of the shares and voting rights in PBCL for one year within the three years before the disposal, which he did not, leading to the disallowance of ER and the dismissal of the appeal.
The complexities of trust ownership and the stringent requirements of BADR converged to result in the trustees being denied relief on the sale of company shares, leading to a significant tax liability.
This case serves as a crucial reminder of the meticulous planning required when considering shareholding structures, especially in the context of trusts.
In conclusion, while BADR presents a valuable opportunity for tax savings, its intricate conditions and interplay with trust structures underline the need for diligent planning and expert guidance.
As entrepreneurs and trustees seek to navigate these waters, proper tax advice remains key.
If you have any queries about this article on Business Asset Disposal Relief for Trusts and Trustees or any UK tax matters, then please get in touch.
In a significant move, the Malaysian government, through the Finance (No. 2) Act 2023 and the Income Tax (Exemption) (No. 7) Order 2023, has deferred the commencement of capital gains tax on the disposal of shares in unlisted Malaysian companies to March 1, 2024.
This exemption is effective from 1 January 2024, to 29 February 2024.
The Exemption Order offers a temporary reprieve from capital gains tax.
It applies for companies, limited liability partnerships, trust bodies, and co-operative societies on profits gained from the disposal of unlisted Malaysian company shares within the specified period.
The shares must be disposed of between 1 January 2024, and 29 February 2024 to qualify for the exemption.
This order does not apply to disposals where gains are considered business income under the Income Tax Act 1967.
Following this order, the capital gains tax will commence on 1 March 2024, aligning with the original announcement in the Malaysian Budget 2024.
The imposition of capital gains tax on disposals of shares in controlled companies outside Malaysia (owning real property in Malaysia or shares in another controlled company) still commences on 1 January 2024.
Disposals from 1 January 2024, to 29 February 2024, are not subject to the Real Property Gains Tax Act 1976 or capital gains tax.
This strategic deferment allows a window for entities to plan and adjust to the impending tax changes.
Businesses and investors involved in the Malaysian market must be aware of these updates to optimise their tax strategies and compliance.
This deferment represents an important transitional period in Malaysia’s tax landscape, especially for stakeholders in unlisted companies.
It reflects the government’s efforts to streamline tax policies while considering the impact on businesses.
If you have any queries around this article on Malaysia Defers Capital Gains Tax or Malaysian tax matters in general, then please get in touch.