Capital Gains Tax (CGT)

Do you sometimes have to pay CGT? Or do you own assets which might give rise to a capital gain when sold? If so then read on for important information about the CGT system.

Making the most of your investments requires some understanding that CGT arises on the sale of most assets and, subject to various reliefs and exemptions, is payable on the difference between the sale proceeds and the original cost. The CGT annual exemption results in the first £11,700 of gains, for 2018/19, being tax free.

In general CGT is payable at 10% where total taxable gains and income, after taking into account all allowable deductions are less than the income tax basic rate band. CGT is payable at 20% on gains, or any parts of gains, above this limit. However, higher rates (18% and 28%) apply for chargeable gains on residential property that do not qualify for private residence relief.

Some assets are exempt from CGT such as motor cars (including classic cars), personal goods such as jewellery or antiques sold for less than £6,000, UK government bonds and, crucially, your only or main home.

Where a gain is chargeable, there are a number of reliefs which could be considered mainly in relation to business assets. Such reliefs are mainly used to defer tax until a later date rather than reduce the gain permanently. Entrepreneurs’ and Investors’ Reliefs are the exceptions.

Entrepreneurs’ Relief

Qualifying gains are taxed at a 10% rate of tax. The amount of the gains that can qualify for relief is currently £10 million during an individual’s lifetime.

Qualifying business disposals include:

There also needs to be a qualifying period of ownership of generally one year up to the disposal.

Where an individual makes a qualifying business disposal, relief may also be available on an ‘associated disposal’. An ‘associated disposal’ is a disposal of an asset:

There are potentially complex conditions that need to be satisfied for relief on an ‘associated disposal’. Please contact us if you consider this is relevant to your circumstances.

Trustees may benefit from the relief but only in very limited circumstances.

Investors’ Relief

A 10% CGT rate applies to external investors (ie not employees or officers of the company) in unlisted trading companies. To qualify for investors’ relief the following conditions apply:

An individual’s qualifying gains for investors’ relief will be subject to a cap of £10 million in their lifetime.

Tax Planning

To obtain Entrepreneurs’ Relief and Investors’ Relief, various conditions need to be met over a period of time prior to any such disposals. Please contact us if either of these reliefs are of interest to you.