We consider the taxation of capital gains and outline the reliefs available. If you live in the Broxburn area we, at The A9 Partnership Ltd, can provide taxation advice to ensure that maximum opportunity is taken of the reliefs available for capital gains tax.
A capital gain arises when certain capital (or 'chargeable') assets are sold at a profit. The gain is the sale proceeds (net of selling costs) less the purchase price (including acquisition costs).
BADR may be available for certain business disposals and has the effect of charging the first £1 million of gains qualifying for the relief at an effective rate of 10%.
The relief is available to individuals on the disposal of:
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:
Restrictions on obtaining the relief on an ‘associated disposal’ are likely to apply in certain specific situations. This includes the common situation where a property is in personal ownership but is used in an unquoted company or partnership trade in return for a rent. Under BADR the availability of relief is restricted where rent is paid.
Ownership conditions apply throughout the period up to the date of disposal. For disposals on or after 6 April 2019, the necessary qualifying period of ownership is two years.
To qualify for BADR, the company needs to be an individual’s ‘personal company’ where the individual must:
For disposals on or after 29 October 2018, they must also satisfy one of the following tests:
From 6 April 2019 those shareholders whose holding in their company is reduced below the normal 5% qualifying level as a result of raising funds for commercial purposes by means of an issue of new shares may still obtain BADR. An election can be made which allows shareholders to crystallise a gain on their shares before the dilution occurs. This would be achieved by treating the shareholding as having been sold and immediately re-purchased at the prevailing market value. The election will have to be made in their tax return for the year in which the dilution takes place. The shareholder may also elect to defer the accrued gain until their shares are actually disposed of.
Careful planning will be required with BADR but if you would like to discuss BADR in detail and how it might affect your business, please do get in touch.
IR is aimed at external investors (other than certain employees or officers of the company) in unlisted trading companies. To qualify for the 10% CGT rate under ‘investors’ relief’ the following conditions need to be met:
An individual’s qualifying gains for IR are subject to a lifetime cap of £10 million.
All shares of the same class in the same company are treated as forming a single asset, regardless of when they were originally acquired. However, ‘same day’ transactions are matched and there are ‘30 day’ anti-avoidance rules.
On 15 April 2023 Jeff sold 2000 shares in A plc from his holding of 4,000 shares which he had acquired as follows:
Due to significant stock market changes, he decided to purchase 500 shares on 30 April 2023 in the same company.
The disposal of 2,000 shares will be matched firstly with the later transaction of 500 shares as it is within the following 30 days and then with 1,500/4,000 (1,000+1,500+1,500) of the single asset pool on an average cost basis.
Every tax year each individual is allowed to make gains up to the annual exemption without paying any CGT. The annual exemption for 2023/24 is £6,000 (£12,300 in 2022/23). Consideration should be given to ensuring both spouses/civil partners utilise this facility.
The rates of CGT are generally 10% and 20%. However 18% and 28% rates apply for carried interest and for chargeable gains on residential property that does not qualify for private residence relief.
Capital gains can arise in many other situations. Some of these, such as gains on Enterprise Investment Scheme and Venture Capital Trust shares, and deferred gains on share for share or share for loan note exchanges, can be complex. Please talk to us before making any decisions.
And finally, many existing reliefs continue to be available, such as:
Careful planning of capital asset disposals is essential in order to minimise capital gains tax. If you live in the Broxburn area we, at The A9 Partnership Ltd, would be happy to discuss the options with you. Please contact us if you would like further advice.