New rules for external finance

MHA MacIntyre Hudson

24th March 2016

Budget Review

ENTREPRENEURS’ relief provides a 10 per cent tax rate on the first £10m of capital gains on the sale of a trading company for directors or employees that own over five per cent of the shares.  

Prior to the Budget, there was much talk about possibly reducing the relief. However, in a surprise move the relief has been extended to external investors who purchase newly issued shares from 16 March 2016 (as long as they are held for three years).

It will be interesting to see how well used this becomes due to similarities with the Enterprise Investment Scheme (EIS). Although there are more conditions to be met to claim EIS, it is much more generous with a 30 per cent income tax saving on investment and a complete exemption from tax on the sale.

Any companies wishing to attract external finance should consult an advisor to determine the most suitable mechanism in their circumstances.

Tax increases for company shareholders

One of the tax changes about to affect shareholders was actually announced in last year’s budget. From 6 April the dividend tax regime is being reformed. The effective tax rates are increasing by 7.5 percentage points: from 25 per cent to 32.5 per cent for a higher rate taxpayer and from 30.56 per cent to 38.1 per cent for an additional rate taxpayer.  

The changes to dividend taxation will increase the incentive for shareholders to seek capital returns rather than income returns from their shareholdings.The government has released draft legislation and launched a consultation into the taxation receiving value from a company in one of the following ways:

* A liquidation of the company

* A sale of shares where profits have been retained in the company ahead of the sale 

* Repayments of share capital

* Company purchases of its own shares

Shareholders planning to undertake any of these transactions should speak with a tax advisor to discuss how this may affect them.

If you would like to discuss any of these issues in more detail Rachel can be contacted on 01604 624011 or at rachel.nutt@mhllp.co.uk.  You can also obtain a copy of MHA MacIntyre Hudson’s Budget Summary online at http://www.macintyrehudson.co.uk/services/tax/budget-2016

MHA MacIntyre Hudson