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
CGT Changes
Major changes were made to CGT for individuals and trustees from April 2008 onwards. These included, for disposals and held over gains arising on or after 6 April 2008. the double whammy that neither taper relief nor indexation allowance are available (even if assets were held before this date).
Gains arising in 2010/11, but before 23 June 2010 will be liable to CGT at 18%. Gains arising on or after 23 June 2010 remain liable to CGT at 18% where an individual’s total taxable gains and income, after taking into account all allowable deductions including losses, personal allowances and the CGT annual exemption, are less than the upper limit of the income tax basic rate band £37,400. A new 28% rate will apply to gains or any parts of gains above this limit
Entrepreneurs’ Relief
Additionally a new relief known as ‘Entrepreneurs’ Relief (ER) was introduced from April 2008, available for capital gains arising on the disposal of a business.
The effect of the relief is to reduce the gains liable to CGT at 18% by 4/9ths resulting in on effective rate of 10% (18% x 5/gths). The relief is available for gains up to a lifetime limit of £5 million for gains arising on or offer 23 June 2010. The limits were £2 million for gains arising between 6 April 2010 and 22 June 2010 and £1 million between 6 April 2008 and 5 April 2010.
The changes to the CGT rates from 23 June 2010 would mean that the 4/9 reduction no longer achieved an effective rate of 10% tax. As a result gains made on or after 23 June 2010 will be charged at a 10% rate of tax. The previous 4/9 reduction will cease to apply from this dale
Gains made between 6 April 2010 and 22 June 2010
| Gain Qualifying Amounft Chargeable Tax Effective 1 for ER ofER qain rate | |||||
| 250,000 | 250,000 | 111,111 | 138,889 | 25,000 | 10% |
| 500,000 | 500,000 | 222,222 | 277,778 | 50,000 | 10% |
| 750,000 | 750,000 | 333,333 | 416,667 | 75,000 | 10% |
| 1,000.000 | 1,000,000 | 444,444 | 555,556 | 100,000 | 10% |
| 1,250,000 | 1,250,000 | 555,556 | 694,444 | 125,000 | 10% |
| 1,500,000 | 1,500,000 | 666,667 | 833,333 | 150,000 | 10% |
| 1,750,000 | 1,750,000 | 777,778 | 972,222 | 175,000 | 10% |
| 2,000,000 | 2,000,000 | 888,8889 | 1,111,111 | 200,000 | 10% |
| 3.000,000 | 2,000,000 | 888,8889 | 2,111,111 | 380,000 | 12.7% |
| 4,000,000 | 2,000,000 | 888,8889 | 3,111,111 | 560,000 | 14% |
| 5,000,000 | 2,000,000 | 888,8889 | 4,111,111 | 740,000 | 14.8% |
Gains made on or after 23 June 2010 up to the unused balance of the lifetime limit will be charged at a 10% rate of CGT.
The conditions for the new relief are based broadly on the old Retirement Relief but the new rules are designed to be simpler:
- • there is no minimum age limit, and
- • the relief is available where the relevant conditions are met for a period of one year.
The relief applies to gains arising on the disposal of the whole, or a part, of a trading business that is carried on by the individual, either alone or in partnership. Where a business ceases, relief is available on gains on assets used in the business and disposed of within three years of cessation.
The relief also applies to gains on the disposal of shares in a trading company, or holding company of a trading group, provided that the individual making the disposal:
- • has been an officer or employee of the company, or of a company in the same group of companies,-and
- • owned at least 5% of the share capital of the company and that holding enables the individual to exercise at least 5% of the voting rights.
Where an individual qualifies for the relief on a disposal of shares, relief may also be available in respect of any “associated disposals’ of assets which were owned personally and used in the company, or group’s, business. A similar rule may allow relief on an associated disposal by a member of a partnership who is entitled to relief on the disposal of their interest in the assets of the partnership.
Trustees are also able to benefit from the relief if a beneficiary ol the trust with an interest in possession relating to those assets is involved in carrying on the business in question, personally or as a partner In the case of shares, the beneficiary must qualify as an officer or employee of the company in question and own at least 5% of the shares personally
The above is only a brief summary of the new relief Please contact us if you would like to know more.
Main Residence
An individual’s or married couple’s only or main residence including land up to half a hectare is exempt from CGT. Land in excess of half a hectare may also qualify for relief if certain conditions are met If a property has not been the only residence throughout the period of ownership the relief may be restricted.
Periods of absence from the main residence may not qualify for the relief although the last three years of ownership will automatically qualify provided the property has qualified at some point during the period of ownership. In addition if a property has been let during any absences a further letting relief may be available.
If you have more than one home, you can choose which one should benefit from the CGT exemption. This requires an election and needs careful thought to ensure any available exemption is maximised
Bed and Breakfast –Alternatives
Bed and breakfasting is the term used for the sale and almost immediate repurchase of the same shares It used to be an effective way of realising gains which would be covered by the annual CGT exemption or to utilise losses. However changes to the CGT rules have rendered this ineffective.
TAX TIP
There may be ways around this:
- • sell shares from your personal portfolio and repurchase through an ISA
- • a sale by one spouse followed by the repurchase in the name of the other spouse
- • wait 30 days before repurchase.
Deferrement of Capital Gains through Enterprise Investment Scheme
The Enterprise Investment Scheme (EIS) scheme allows individuals to defer capital gains made on the disposal of any asset so long as the gain is reinvested in shares in an EIS qualifying unquoted trading company
The deterred gain crystallises on a subsequent disposal ot the shares unless certain conditions are breached before that time.
Please note:
- • certain trades (eg property development and farming) are excluded
- • the shares must be acquired by subscription – ie only new shores qualify
- • the EIS scheme is complex and advice is essential
How we can help
Whilst some generalisations can be made about Capital Gains TAX advice it is always necessary to tailor any advice to your personal situation therefore if you need advice regarding the sale of assets then please call Keith Rogers Accountants on +44 (0) 20 3145 0995 so we can arrange a No obligation FREE initial meeting at one of our offices. If you are interested in instructing us we will offer you a FIXED FEE service with no hourly charges or hidden costs. You have unlimited telephone support during our opening hours to assist you in making the correct strategic decisions. If you wish to view the other services that Keith Rogers Accountants offer then please visit our website KRA-Uk.com