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Investment and Retirement Planning
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Demutualisations, what are the tax consequences? Any thoughts on maximising tax reliefs? Here's a great idea
The first thing to remember if you receive such a payment is that it may very well be taxable:
- in the case of demutualisation payments, it is quite likely that the full amount received will be a capital gain, while
- in the case of payments for shares and securities on a company being taken private, the normal capital gains tax (CGT) computation rules apply.
Our role is to calculate your gains - and tell you how much CGT you can expect to pay. Remember that gains are calculated after deducting the cost of shares and indexation and taper reliefs as appropriate. Once the gains on each disposal is calculated, you also need to deduct losses on other disposals in the current tax year, your annual exemption, and relief for any CGT losses brought forward from earlier years.
After all this, it may be that you have no tax to pay, but if there is a significant liability it is worth considering tax planning steps which could reduce or cancel out the tax due.
In many cases you will be given an option to take loan notes instead of cash. This can be useful if it will mean you can spread your gain over several years and make use of several annual exemptions to cover your gain.
On the other hand, you could take the cash and use it to enhance your retirement funding. Subject to the usual limits, investment in pensions will attract tax relief at your highest rate, so cancelling your CGT liability.
Consult us if you are concerned about your potential liability to CGT, or the effect the rules may have on your pension planning.
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