Are you on top of Capital Gains Tax?

19th July 2017

When you buy an item with the intention of selling it for a profit, that transaction is treated as a trade and you pay income tax on the profit you make on the sale. When you acquire an asset to use or hold for a period of time, the profit you make when you dispose of that item is treated as a capital gain, which is subject to capital gains tax (CGT).

CGT can be confusing as there are a number of reliefs associated with CGT which affect who pays what, when. We’ve outlined some of the main reliefs but when it comes to CGT, it’s important to seek professional advice and plan accordingly.

Personal reliefs

Tax-free assets

Some types of assets are not subject to CGT when you dispose of them. These include:

• moveable possessions worth no more than £6,000

• motorcars of any value

• government stock (gilts) and savings certificates

• currency for personal use

• debts and most corporate bonds

Your own home

When you sell the property you have occupied as your main home for the entire period of your ownership, the gain is completely free of CGT. If you lived in the property for only part of that time, the proportion of the gain relating to your period of occupation is exempt from CGT and the gain for the last 18 months is also exempt. CGT is also affected if you have two or more properties, if you let your home or you need to live elsewhere for your job, or if you move into a care home.

Gifts

Any assets you give to charity or to a community amateur sports club are free of CGT. There is a general exemption from CGT for gifts between husband and wife or civil partners who are living together in that tax year, but not for gifts to other relatives. 

Reinvesting, deferring

If you are prepared to take some risk with your investments, you can defer paying CGT on gains by investing the amount of the gain in shares issued under the Enterprise Investment Scheme or shares or bonds issued under the Social Investment Tax relief scheme.

Losses and negligible value

Sometimes an investment will make a loss when you sell it. That capital loss can be set against the capital gains you make in the same tax year or be carried forward. You need to claim the loss on your tax return so it can be used in this way.

Business reliefs

Roll-over relief

Businesses need to replace their assets without worrying about the tax payable on the gain.

Where the full gain is reinvested in a new asset (within certain categories) which is used for the

business, the gain will be rolled over into the value of that new asset. In that case CGT is only

paid on the sale of the replacement asset, if that is not also replaced.

Hold-over relief

If you give a business asset or shares in your company to an individual, the gain can be held over so you don’t pay CGT. The recipient of the asset or shares will pay CGT on the gain they make when selling the gifted assets, as if they had owned those assets from the time you acquired them.

Incorporation relief

When you transfer your unincorporated business to a company, you would normally pay CGT

on the gain made on any chargeable assets. But if you receive shares in return you can roll

over the gain into the value of those shares. This defers the CGT payable until you sell those shares. 

Other reliefs

You may also be able to claim Entrepreneur’s Relief, which reduces the rate of CGT to 10% on up to £10m of qualifying gains, or Investors’ relief by investing in an unquoted company which you do not work for but there are strict rules, so it is important to gain professional advice first. 

CGT savings in action

To find out more about where we have saved clients money through careful CGT planning, visit our case studies.

Our business and personal finance teams work in close partnership, so can advise on all aspects of Capital Gains Tax. In the first instance, contact me by email: vanessa.glenn@hboltd.co.uk