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Hard rain’s gonna fall?
Prior to Christmas, it was reported that Bob Dylan cashed in his songbook for what was speculated to be around $300 million.
One reason offered for the sale was President-elect Joe Biden’s promise to raising taxes on capital gain. Instead of, broadly, being taxed at a rate of 20%, new proposals might tax the windfall income which is currently at a top rate of 37% (Mr Biden has also proposed raising this to 39.6%).
Potentially, a delay such that he did not lock in these rates before a legislation change, might have doubled his tax bill.
Enough to give anyone the Subterranean Homesick Blues!
Dylan is not the only one who has sold his back catalogue. Shakira – who released her first album aged 13 – has also sold the rights to her 145 songs.
Of course, the Colombian superstar was reportedly found guilty of tax evasion in Spanish Courts. She allegedly owed back taxes of £12.2m. As such, the proceeds from the sale might come in quite handy.
A number of other artistes – including Stevie Nicks and Neil Young – have sold all, or part, of their material in recent months.
Of course, these sales may owe as much, or indeed more, to the fact that investment funds see music rights as a solid investment at the moment.
The times they are a-changing
Of course, the same ‘threat’ posed by Mr Biden also potentially lurks around the corner for UK taxpayers.
One not only goes to the cupboard not to find it bare – but containing a Post-It note saying you owe several hundred billion pounds.
As such, there is a very real concern (including amongst clients) that CGT might be a soft target. Specifically, as looks to be the case for a post Covid US, a potential closing of the gap between the max CGT rate (20% or 28%) and that of income tax of 45%.
This was one of the main suggestions emanating from the Office for Tax Simplification’s report on simplifying the CGT regime. A cynic might suggest the report was more concerned with finding opportunities to raise revenue than a genuine attempt to simplify the system.
In addition, we have already seen a dialling back of reliefs – such as Entrepreneurs’ Relief (“ER”) which now exists in a desiccated form, which was reduced from £10m to £1m at the last Budget.
A swing from 10% to 45% would represent a real punch in the stomach for someone who feels a sale of their business is realistically on the horizon.
As such, some clients do see some merit in accelerating a disposal of assets so that they can lock in the current rates and reliefs… even if that accelerates a tax charge.
In respect of a business owner, the most obvious way of achieving this might be the sale of the business to either a third party or, for instance to management.
Alternatively, one might look at a disposal to a ‘friendly’ structure – such as a trust or another company.
With particular regard to the latter, one needs to be careful – there are anti-avoidance rules which might need to be addressed.
More widely, with the unsatisfactory manner in which tax policy is currently managed, one also would need to bear in mind the prospect of legislation that is specifically designed to address any planning implemented to ‘lock-in’ rates – particularly where any ideas adopted might be seen as ‘too clever’ by HMRC or the Treasury.
It’s all over now, baby blue
Clearly, these are subjective calls. However, whether taking action was the right or wrong thing to do may not become apparent until it is too late.