Five Weeks Until Capital Gains Increase

MAY 17, 2024

We are now half way through the 10-week period before the introduction of significantly increased capital gains tax rates. Many of you will have already assessed whether any planning is necessary or beneficial.  Please make sure you contact your RMR lead if you have any doubt about whether action is required before the deadline. For many clients there is little to be done; however, for others there are material advantages to implementing a plan. The most common circumstances where planning is helpful include:

  • Business owners intending to sell their businesses in the next 2 -3 years

  • Older individuals with significant gains that will be realized on the transfer of assets as an estate planning matter, and

  • Holding company owners with a desire to create a low-cost method for extracting funds to personal hands for planned drawings in the next 5 years

Another idea worth considering for holdco owners: consider extracting funds from corporations to personal hands to benefit from the rule that personal capital gains of up to $250,000 per person will continue to be taxed at the existing rates.

This idea works best in these circumstances:

  1. Where the shareholder is already owed a significant sum by the holding company.  Early extraction of funds from a holding company doesn’t usually make sense if the corporate funds would require the payment of a taxable dividend.

  2. The money pulled out of the holding company does not have a large gain and therefore is not a proportionally large immediate tax hit (note:  if the gain is likely to be realized anyway in the next 5 years then this item can be ignored in the analysis)

  3. The funds will be placed in investments likely to yield significant capital gains in the future.

It is challenging to develop general rules that always apply. So, if you have any doubt please be in touch!