Entrepreneurs' tax relief - alternatives
Discussion
I was hoping to wind up my business and retire in the next couple of years, build that fantasy garage and fritter the rest of my days spannering. The budget blew all that planning into the weeds when he effectively stopped entrepreneurs' relief, and now I'll need to stick around even longer to acheive the net sale proceeds I was hoping for.
I was dimly aware that there were some other ruses that could achieve the same effect, like be domiciled elsewhere (I would like to retire somewhere warmer anyway), or maybe incorprate the buseiness elsewhere (we do have a decent proportion of our clients in Switzerland and the US). Do you have any experience or advice about how to start on this one?
I was dimly aware that there were some other ruses that could achieve the same effect, like be domiciled elsewhere (I would like to retire somewhere warmer anyway), or maybe incorprate the buseiness elsewhere (we do have a decent proportion of our clients in Switzerland and the US). Do you have any experience or advice about how to start on this one?
Live in portugal for five years, they have 0% cgt for first 10years living there (iirc).
Domicile there, sell up, declare you capital gains as occurong there (youd need to cut all ties with uk, e.g sell home).
Then you have to wait 5 years to come back or uk will tax you. You have to be in Portugal for 180days or so pa and can only be in uk 30 p.a.
Surprised the extra 10% above 1m makes such a difference to your planning, maybe one or two fewer cars and still retire?
Domicile there, sell up, declare you capital gains as occurong there (youd need to cut all ties with uk, e.g sell home).
Then you have to wait 5 years to come back or uk will tax you. You have to be in Portugal for 180days or so pa and can only be in uk 30 p.a.
Surprised the extra 10% above 1m makes such a difference to your planning, maybe one or two fewer cars and still retire?
SpartacusF said:
The budget blew all that planning into the weeds when he effectively stopped entrepreneurs' relief
Entrepreneurs' Relief is CGT at 10% on the first £1m of gains (used to be 10% on £10m of gains).The standard rate of CGT for higher rate taxpayers is 20%. So the maximum additional tax resulting from the Budget changes is 10%.
Examples:
A business started from scratch is sold for £2m so the whole selling price is "taxable gain",
2019/20 - tax payable = £200k, and the seller walks away with £1.8million in their pocket.
2020/21 - tax payable = £300k and the seller walks away with £1.7million in their pocket.
Or, a business started from scratch is sold for £10m so the whole selling price is "taxable gain",
2019/20 - tax payable = £1m and the seller walks away with £9million in their pocket.
2020/21 - tax payable = £1.9 and the seller walks away with £8.1million in their pocket.
In reality, the effect of the Budget change doesn't look particularly significant. Obviously if a business is sold with taxable gains of £100m the additional tax bill would be £10m, but since Mr Entrepreneur would still be walking away with £80 million in his pocket I doubt the Great British Public would feel particularly heartbroken.
I think you mean residence not domicile.
Even if you’re non resident, you’ll be subject to CGT/tax on any gains and profits arising from your U.K. trade.
If you move the trade to another jurisdiction, you’ll be deemed to have disposed of the U.K. trade and taxed accordingly.
The non residence “wheeze” does not apply (broadly) to U.K. real estate/trades, professions or vocations.
Even if you’re non resident, you’ll be subject to CGT/tax on any gains and profits arising from your U.K. trade.
If you move the trade to another jurisdiction, you’ll be deemed to have disposed of the U.K. trade and taxed accordingly.
The non residence “wheeze” does not apply (broadly) to U.K. real estate/trades, professions or vocations.
It’s residence that’s important. Not domicile. And if it’s a company, it’ll be the residence of the company.
Any trade, business or vocation carried on in the UK is subject to UK tax, including tax on capital gains (if it’s a company - CGT for individuals) regardless of where the company/you reside.
It’s a bit more complex than this because you’re into tax treaties as well.
Any trade, business or vocation carried on in the UK is subject to UK tax, including tax on capital gains (if it’s a company - CGT for individuals) regardless of where the company/you reside.
It’s a bit more complex than this because you’re into tax treaties as well.
Edited by Alpinestars on Wednesday 27th May 07:56
SpartacusF said:
So assuming I changed my domicile to Portugal, but continue to own my business which is physically and incorprated in the UK, are dividends and income subject only to Portugese tax? Then in a few years' time, when I dispose of my business, does the same apply, or will HMRC take CGT?
You would need to become a non-habitual resident in Portugal (spending at least 180 days a year there) to qualify for 10 years tax free dividend income in the UK.It is a lovely country with very friendly people and I spent time living in the Algarve that I really enjoyed. The language is not easy to learn though!
Would be quite hard to run a Uk company from portugal and still maintain the companies Uk tax residence. Going offshore (leave before the start of the tax year you realise the gain) is the only option these days. Monaco or Channel Islands are other options. Be wary of one man bands offering “solutions”
As previously stated, moving residence of the company won’t help.
When you say a trade sale I assume a sale of shares to a trade bidder?
You personally would need to be non resident, to be safe, in the tax year prior to the sale of the shares. In a jurisdiction that Itself does not tax the gain, otherwise you jump from one (relatively lenient tax system in the U.K., to another). This will limit where you can go. You then need to remain non U.K. resident for 5 years.
When you say a trade sale I assume a sale of shares to a trade bidder?
You personally would need to be non resident, to be safe, in the tax year prior to the sale of the shares. In a jurisdiction that Itself does not tax the gain, otherwise you jump from one (relatively lenient tax system in the U.K., to another). This will limit where you can go. You then need to remain non U.K. resident for 5 years.
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