Ken Moody considers the use of preference shares on the incorporation of a business as a way of deferring capital gains tax and maximising the benefit of annual exemptions.
The reduction in the lifetime limit for capital gains tax (CGT) business asset disposal relief (BADR) from £10 million to only £1 million was something of a shock, even if, arguably, justified.
How to incorporate?
On incorporation of a business, it had become optimal in many cases to sell the business to the new company at full market value. This made use of BADR and left a substantial credit balance on director’s loan account (DLA), which could then be drawn tax-free to top up remuneration or dividends above the basic rate limit.
A rather large dent in that strategy was made by FA 2015 introducing TCGA 1992, s