Individuals and trustees who dispose of assets that are chargeable assets for Capital Gains Tax (‘CGT’) purposes need to be aware of the complex tax rules that can apply.
Chargeable assets can include (but not limited to): land and buildings; other business assets; stocks and shares; crypto currencies; and certain personal possessions.
Disposals for this purpose include disposals by way of sale or gift, and so specialist advice should be sought before any disposals of chargeable assets are made so as to manage any unwelcome tax bills.
Individual taxpayers are entitled to a CGT-free allowances each year – being £12,000 in respect of the 2019/20 tax year (reducing to £6,000 for trustees).
The rate of CGT is 20% or 10% insofar that the taxpayer’s basic rate band for income tax is available. These CGT rates increase to 28% and 20% respectively in respect of chargeable gains arising on the disposal of residential property.
Certain reliefs can however apply in relation to disposals of chargeable assets in order to reduce CGT bills, including (but not limited to):
- Entrepreneurs’ relief (‘ER’) in relation to qualifying disposals of business assets. Chargeable gains that qualify for ER are taxed at an attractive 10% rate of CGT (up to a £10 million lifetime allowance of qualifying gains). Whilst trustees do not qualify for ER per se, they can utilise the ER lifetime allowance of qualifying beneficiaries in certain instances;
- EIS and SEIS Relief are government initiatives offering significant income tax relief for investing in the shares of small companies, but they also benefit from being completely free of capital gains tax on any profits made on the investment once the shares have been sold as long as certain conditions have been met.
- Capital Gains Deferral allows any gains made on the disposal of any kind of asset to be deferred by reinvestment in EIS companies. The investment must be in newly issued ordinary shares. The deferral can only be made of the disposal of a chargeable asset not more than three years before, nor more than one year after, the EIS investment is made. Deferrals are not limited to the £1 million limit applicable to EIS income tax relief and It is possible to invest more than that and get deferral relief on the total investment. This is all subject to a number of strict conditions being met.
- Main residence relief, which can exempt all or part of a chargeable gain arising on the disposal of a residential property which has been used as the taxpayer’s only and / or main residence during their period of ownership;
- Gift relief, which can apply in respect of certain gifts and can defer the CGT charge on the chargeable gain until the transferee’s subsequent disposal of the asset; and
- Rollover relief, which can apply to ‘rollover’ chargeable gains on the acquisition of certain business assets within a set time frame.
To find out why so many of our clients entrust their tax matters to Richard Anthony, please contact us.