As a rule, commercial decisions should not be made only for tax reasons, but if you own a business, should you:

Sell earlier to maximise the retirement relief available now?

Sell later to benefit from low rates of capital gains tax?

Maximise both, in which case how?

If in this tax year you dispose of a business asset which includes a five per cent holding in a trading company and you are aged 50 or over or are retiring on health grounds, retirement relief from CGT of up to £625,000 is currently available. No tax is payable on the first £250,000 of the gain and only 50 per cent of the next £750,000 is liable.

The Chancellor intends, and it is now law, that retirement relief is to be reduced progressively over the next five years, so that if a disposal is after April 5, 2003, no retirement relief is available whatsoever.

Selling your business earlier, therefore, maximises retirement relief, but if the consideration is well in excess of £1 million, the tax liability for the balance of the gain remains chargeable, is likely to be higher.

The Chancellor has brought in a new relief called taper relief, with the fundamental principal behind this that the longer you have held an asset the more relief you get.

Peter Meredith is a partner with Howarth Clark Whitehill.

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