We will cover below the taxation of capital gains and outline the reliefs available. If you live in Welling, Beckenham, Bromley, Kent and London we, at Adiva Accountants in Welling, can provide taxation advice to ensure that maximum opportunity is taken of the reliefs available.
A capital gain arises when certain capital (or ‘chargeable’) assets are sold at a profit. The gain is the sale proceeds (net of selling costs) less the purchase price (including acquisition costs).
The features of the current system
- For disposals up to 5 April 2016 capital gains tax (CGT) at the rate of 18% applies to gains (including any held over gains coming into charge) where net total taxable gains and income is below the income tax basic rate band of £31,785 for 2015/16. Gains (or the rest of gains) above this limit will be charged at 28%.
- From 6 April 2016, with a few exceptions the government is to reduce the higher rate of CGT from 28% to 20% and the basic rate from 18% to 10%.
- Entrepreneurs’ relief may be available on certain business disposals.
Entrepreneurs’ Relief (ER)
For certain business disposals taking place on or after 6 April 2008, ER may be available. This relief has the effect of charging only 10% tax on the first £10m (from 6 April 2011) of gains qualifying for the relief.
This relief will apply to gains arising on a disposal of:
- the whole, or part, of a trading business that is carried on by the individual, either alone or in partnership;
- assets used by a business or a company which has ceased;
- shares in a trading company, or holding company of a trading group. Provided that the individual owns broadly a 5% shareholding and has been an officer or employee of the company;
- assets used in a partnership or by a company but owned by an individual. If the assets disposed of are ‘associated’ with the withdrawal from participation in the partnership or the company.
A trading business includes professions, but only includes a property business if it is a ‘furnished holiday lettings’ business.
In certain situations, there are restrictions on obtaining the relief on an “associated disposal”. This applies where a property is currently in personal ownership, but is used in an unquoted company or partnership trade in return for a rent. The availability of ER relief is restricted where rent is paid from 6 April 2008 onwards. It is clear that careful planning will be required with ER, so please do get in touch. We are happy to discuss ER in detail and how it might affect your business.
In Budget 2016 the government announced that ER will be extended to external investors. Other than certain employees or officers of the company in unlisted trading companies. To qualify for the 10% CGT rate under ‘investors’ relief’ the following conditions will apply:
- shares must be newly issued and subscribed for by the individual for new consideration
- have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016
- be in an unlisted trading company, or an unlisted holding company of a trading group
- have been held continuously for a period of three years before disposal.
An individual’s qualifying gains for investors’ relief (the same as ER) will be subject to a lifetime cap of £10 million.
Capital gains rise on Enterprise Investment Scheme and Venture Capital Trust shares, and deferred gains on share for share or share for loan note exchanges, can be complex. Please talk to us before making any decisions.
Finally, many existing reliefs continue to be available, such as:
- private residence relief;
- letting relief;
- business asset gift relief, which allows the gain on business assets that are given away to be held over until the assets are disposed of by the donee;
- business asset rollover relief, which enables the gain on a business asset to be deferred until a point in the future;
- any unused allowable losses from previous years, which can be brought forward in order to reduce any gains.
If you are an investor or entrepreneur who live in Welling, Beckenham, Bromley, Kent and London we, at Adiva Accountants in Welling, can provide tax advice to ensure that all the reliefs available are claimed. We would welcome the chance to tailor a plan to your own personal circumstances, so please do contact us today.