Ask Annie: Do I face capital punishment for selling my business and home?

Q. I have been running my own business, with a partner, for three years and we have done well – the firm is expanding at a great pace. At the age of 56, though, I am beginning to think about retiring and selling my share of the business. Ideally I'd like to retire abroad, selling my home in the UK and buying one in France in three to four years' time.

However, I am concerned about the Government's decision to abolish taper relief on capital gains tax (CGT). How could this affect my plans? And what other expenses and taxes do I need to be aware of when I try to sell my share of the business? JP, Cumbria

A. You have not mentioned whether your business is constituted as a limited company or a partnership, nor have you indicated if you intend to establish tax residence in France when you move there. So the answer to your question can only be in general terms.

Unfortunately, you will be among those business owners caught by the measure outlined in the Chancellor's pre-Budget report last December, abolishing CGT business taper relief. In effect, the relief had meant that tax of just 10 per cent was payable on capital gains from the sale of a business that had been running for at least two years.

Ronnie Ludwig, a partner at accountants Saffery Champness, says: "For sales on or after 6 April this year, a flat rate of capital gains tax of 18 per cent will apply across the board, with no credit being given for previously accrued taper relief. This constitutes an 80 per cent increase in tax.

"But the introduction of the new 'entrepreneurs' relief', announced very recently, will mean an effective 10 per cent rate on the first £1m of gains. So, depending on your circumstances, you may not face a tax increase.

"That said, the detailed legislation for this new relief is yet to be published. When that emerges, you will be more certain whether you qualify for it."

Your proposed move to France, if timed correctly, could also help minimise CGT. Mr Ludwig says: "If it is your intention to take up tax residence in France following retirement, there may be some scope for planning. To become tax resident in France, you will be required to live there for six months or more in any calendar year.

"In order to lose your UK tax residence status and avoid CGT, you will have to live outside the UK for at least five complete tax years, not returning for more than 91 days a year over that period. You should note that days of arrival and departure in the UK now count towards the 91-day annual limit.

"Following on from this, you could arrange to find a purchaser for your share of the business towards the end of the fifth and last tax year in which you will be UK resident, but not actually finalise the sale until after the following 5 April, by which time you will have begun your first full year of non-residence. If this is done, the British CGT charge on the sale of the business can be avoided."

But Mr Ludwig adds that the tax regime in France is not generous, so it is best, if you choose to go down the non-UK residence route, to seek specialist tax advice from an expert in international personal taxation.

With regard to the sale of your UK house, any gains stemming from this are exempt from tax in Britain. But Mr Ludwig points out that if the final stages of the sale of your home are concluded after you have taken up tax residence in France, the gain will be taken into account in determining the rate of income tax you pay in that country. Consequently, he recommends that you complete the sale of your British property prior to leaving the UK.