When you invest your money into a business, you want this to take place as efficiently as possible.
Making use of the right reliefs, such as entrepreneurs' relief and the Enterprise Investment Scheme, can help you deliver this investment in the most cost-effective way. But it's also important to consider the consequences of extracting your investment from such a business in the future.
Planning in advance at all stages of an investment is essential in order to minimise tax costs and maximise your returns.
In this video Dipan Shah explains how choosing the right business structure can help maximise your businesses returns and ensure you only make public the information on your business that you're comfortable with.
There have been recently announced changes in respect of high value (i.e. over £2m) UK residential property held by ‘non-natural persons’ (broadly, companies and partnerships with corporate partners). See the section on ‘Preserving your assets’ for more detail; but there are exemptions to the new measures, which need to be claimed, in respect of residential property owned for business purposes.
A review of the holding structures for these kinds of property should be considered in the light of these new rules.
You could consider crystallising your unrealised losses on poorly performing assets (unless in a close company) and reinvesting them in assets with greater growth potential. This would generate losses which could be offset against future taxable gains whilst enabling a move into assets with greater growth potential.
You’re able to pay CGT at the preferential rate of 10% on up to £10m of your business assets (if they meet the qualifying requirements). There’s also potential for your spouse and other family members to qualify for another £10m disposal if they’re involved with the business.
Maximising use of the Enterprise Investment Scheme (EIS) and new Seed EIS – aimed at start-up family businesses. These schemes provide a range of income tax and CGT benefits so it’s worth checking whether the investment qualifies.
There are now a range of approved employee share schemes that can be used to incentivise employees in family businesses to drive growth in value of family businesses. Each scheme has different conditions and is targeted at companies in different stages of their life cycle.
Consider inheritance tax (IHT) planning prior to the sale of a business – as this point is an excellent opportunity to transfer assets within your family tax efficiently and ensure family members are provided for.
If you run your own business, you should be aware there are a range of business structures possible in the UK with very different tax attributes for the owners. Getting the right structure for you and your business can help save considerable amounts over the long term.
For example privately owned companies must consider both tax paid at company level and tax paid by the shareholder. For a property rental business run in a company, where profits are reinvested, the effective tax rate on profits is about 23%. But if profits are withdrawn, the effective tax rate is nearer 50%. In comparison, if the rental business was run in a partnership, the effective tax rate on ongoing profits would be nearer 50%, irrespective of whether profits are reinvested.