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Tax PlanningCapital Gains Tax (CGT)

Capital Gains Tax (CGT)

Capital Gains Tax is levied on gains arising from the ‘disposal’ of certain assets.

Basic rate tax payers are charged at 10%, whereas higher and additional rate tax payers must pay 20%. As with Income Tax, each UK resident is given an annual allowance/exemption of £11,100 per annum (2016/17). When selling residential property there is an additional 8% surcharge applied to the 10% and 20% rates, this surcharge also applies to carried interest.

For our private clients, disposals typically take the shape of selling shares in collective investments or the sale  of a buy-to-let property.

However individuals should take care as disposal does not necessarily mean the sale of an asset. It includes any transfer of ownership or the derivation of a capital sum from an asset. Disposals that can give rise to CGT might take the form of:

  1. The straightforward sale of an asset
  2. Gifts of certain assets to individuals or Trusts
  3. A capital sum is received for compensation for damage to assets

Exempt Disposals

There are a number of disposals that are exempt from tax. These include:

  • The sale of your main home (principle primary residence)
  • Private motor vehicles
  • NS&I certificates and premium bonds
  • Government and most corporate bonds
  • Chattels
    • Disposal value does not exceed £6,000
    • Chargeable gain cannot exceed 5/3rds of the excess
    • Foreign currency
    • Gambling winnings
    • ISAs and CTFs
    • VCT shares
    • EIS shares (where income tax relief has been given and not withdrawn)
    • Woodlands
    • Disposals to charities, housing associations, national institutions
    • Shares held by employees in a share incentive plan

Entrepreneurs Relief

To encourage entrepreneurialism in the UK, the Government also provides additional relief aimed to reduce taxes due on the sale of a successful business on or after April 2008. Qualifying disposals under this relief are taxed at a reduced rate of 10%.

  • For gains made after April 2011, the relief cover the first £10m
  • From April 2008 – April 2011 the limit changed from £1m, to £2m and then to £5m
  • Broadly speaking, relief is available on the disposal of:
    • All or part of a business run as a sole trader
    • Shares in a trading company where the individual has 5% shareholding in the company
    • Share of a Partnership by a partner