No change to Capital Gains Tax or Business Asset Disposal Relief in the budget

In the months leading up to the Chancellor’s budget, changes were anticipated to both Capital Gains Tax and Business Asset Disposal Relief. However, the budget revealed on 3rd March 2021 didn’t contain these expected changes.

Why was change speculated?

In November 2020, a report from the Office of Tax Simplification (OTS) commissioned by the Chancellor suggested a Capital Gains Tax review. The proposed changes would bring the rates more in-line with income tax rates, lowering the exemption threshold from £12.5k to between £2k and £4k. The report also recommended amendments to Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), refocusing it on retiring business owners.

The goal of these proposed changes was to raise an estimated £14bn for the treasury.

The changes were also expected to affect directors and companies choosing to close via a solvent liquidation or Members Voluntary Liquidation (MVL), potentially increasing the tax they’d have to pay and reducing benefits of Business Asset Disposal Relief.

How the proposed changes were expected to affect MVLs

What actually happened

The budget mainly focused on measures to help businesses cope with the continued (though easing) coronavirus restrictions and included plans to rebuild the economy.

Changes in this budget included: a freeze of the threshold of Personal Allowance tax and an increase on the basic rate income tax threshold to £12,570, or £50,270 for those on a higher rate. These rates will remain frozen until 2026. Capital Gains Tax wasn’t raised, and annual exemptions were frozen until 2026.

More changes introduced in the budget

Applying for a Members Voluntary Liquidation

A Members Voluntary Liquidation (MVL) is the process a solvent business enters if the directors wish to close its doors.

An MVL can be useful in several situations: the business may have served its purpose and has no route forward, or the directors may have chosen to retire without succession.

Applying for an MVL can be a more tax-efficient alternative to a company dissolution and may allow directors to qualify for Business Asset Disposal Relief.

How much does an MVL cost?

Summary

Despite a report from the Office of Tax Simplification (OTS) suggesting changes to Capital Gains Tax and Business Asset Disposal Relief, significant alterations to both were absent when the budget was delivered on 3rd March 2021. Although the changes could have generated an estimated £14bn, the Chancellor chose to focus on rebuilding the economy through other means, and helping businesses recover from the pandemic as restrictions ease over the coming months.