Here's the scenario. You've worked hard over many long and challenging years to build and grow your business to the point where you are now ready to start benefiting from your labours. But there's a potential problem - you could now be penalised for running a successful and profitable business! We're talking about capital gains tax (CGT) and your business.

As a basic principle, CGT is charged on the difference between what you paid for an asset and what you will receive when you sell it. The amount may be adjusted for indexation allowance and then, for individuals and trustees, reduced further by any available taper relief and any available annual CGT exemption.

It is important, therefore, to receive professional independent advice when you go through the process of selling all or part of your business. We can assist you with this and make sure that you make the correct decisions.

There are other provisions that you will also need to consider:

Indexation allowance

This is crucial. It effectively removes from the charge to tax an amount representing gains resulting from inflation from the date of acquisition (or 31 March 1982 if later) to April 1998 (for individuals and trustees) or to the date of disposal (for companies).

The value of taper relief

For disposals made after 5 April 2002, the taper relief for business assets has been accelerated, so the maximum 75% taper relief is available for assets held for just two complete years.

The taper is applied to the net gains chargeable for a year, after setting off losses of the same year and any losses brought forward. You should check with us for the application of taper relief for disposals of business assets between 6 April 1998 and 5 April 2002.

Because the taper is applied before deducting the annual CGT exemption, it may be that the effective rate of CGT on the disposal of business assets can be less than 10%.

Holdover relief

This relief generally applies to gifts of business assets by rolling the donor's gain over to the donee - effectively passing on the donor's gain to be added to any gain realised later by the donee. For taper relief, only the holding period of the new owner will be taken into account and only the untapered gain can be held over.

Rollover relief

This relief applies to the replacement of business assets, and normally operates by reducing the cost of any new asset by an appropriate proportion of the gain realised on the disposal of the old asset. Taper relief will be calculated on the eventual disposal of the new asset by reference only to the period of ownership of the new asset.

We would be happy to advise you further on developing and implementing successful financial strategies for your business and for realising your personal financial goals. E-mail or call us to discuss how we can help.

The Financial Services Authority does not regulate taxation advice

 article dated 05/2003