Family Businesses Unaware of Inheritance and Capital Gains Tax Liabilities
In PwC’s survey of more than 1,600 family-owned small and medium-sized businesses across 35 countries, two thirds of UK firms were also unaware of the international inheritance tax or CGT that they could incur, typically by owning premises abroad.
According to the poll, many UK firms are less well-prepared than their global counterparts. In Spain, 91% of firms were aware of their domestic Capital Gains Tax implications, while 85% of Brazilian firms and 73% in Germany were up to speed on their tax exposure.
Mary Monfries, tax partner at PwC, said the results were “concerning”, saying:
“Tax charges incurred through capital gains or following the death of a member of a family business can be substantial and take money needed for investment in the business.”
Currently, the tax rate for inheritance is £325,000 and is chargeable at 40%. The lower tax threshold for CGT, payable when assets like property are sold at a profit of no more than £10,600, is 18%. Anything above that accrues the higher rate of 28%.
Managing partner at accountancy firm Manningtons, Alan Staples, said tax issues surrounding inheritance and CGT were a “minefield” for owner-managed businesses.
However, there were business tax reliefs available which could offer scope for significant savings, he advised.
“The majority of CGT can be avoided with careful planning. Entrepreneurs relief, for instance, may be available on the disposal of certain assets like property or a trading business, which would mean a reduced tax rate of 10%.”
According to Staples, the most common mistake is to fail to put the business assets into a structured arrangement such as a formal partnership or limited company.
“If the business is simply in your or your spouse’s name, you won’t be eligible for much of the tax relief available so it’s hugely important to get this side of things organised. If in doubt, you should talk to a good accountant who can advise you.”
Full details can be seen in our Capital Gains Tax page for this year’s Budget 2011 annual tax rates ana allowances.