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 £12,300 of gains, for 2021/22, 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. Gains qualifying for Business Asset Disposal Relief (previously known as Entrepreneurs' Relief) and Investors’ Reliefs are the exceptions.
Qualifying gains are taxed at a 10% rate of tax. The amount of the gains that can qualify for relief is currently £1 million during an individual’s lifetime. (£10 million to 10 March 2020).
Qualifying business disposals include:
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:
Ownership period of two years
Ownership conditions apply throughout the period up to the date of disposal. For disposals the necessary qualifying period of ownership is two years.
‘Personal companies’ – a definition
An individual must, throughout the relevant qualifying period:
Note that for trustees who are company shareholders, the qualifying beneficiary of the trust must (had they owned the shares personally) fulfil these criteria, and pass either the distribution or proceeds test.
There are potentially complex conditions that need to be satisfied to meet the necessary conditions to satisfy the distribution or proceeds tests and to qualify for Entrepreneurs' Relief. Please contact us for specific advice.
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.
To obtain Business Asset Disposal 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.