If you are considering your exposure to CGT it’s important to understand what liabilities you have. What tax rate do you normally pay? Are your profits under the annual allowance? Are the assets you have sold liable to CGT?
Do remember that you have that annual tax-free allowance on profits from assets. It is possible to split any profits across two tax years to help reduce your CGT tax bill. Another option is to transfer any gains to your spouse or partner to reduce your liability. Any planning will need the advice of an expert to ensure your affairs are arranged properly.
If you are a higher rate taxpayer you’re likely to be more at risk of paying significant sums in CGT. While there have been reductions from rates of the past (as much as 40% in some cases) you may still face up to 28% CGT on profits from the assets you sell. Again, careful planning can help reduce your exposure.
CGT ALLOWANCES AND RELIEFS
There are a number of allowances and reliefs available, which can help reduce or eliminate your CGT tax bill.
Exclusively for business assets, rollover relief can be claimed when the profits from the sale of business assets are used wholly or in part to fund the purchase of new assets. This means that you would not be liable for CGT until the new asset or assets are sold for profit.
There are some conditions to this relief. You must buy the new assets within three years of selling the old ones and your business must be actively trading to be eligible.
SEED ENTERPRISE INVESTMENT SCHEME (SEIS) REINVESTMENT RELIEF
The Seed Enterprise Investment Scheme, or SEIS, was introduced by HMRC in 2012 to help early-stage companies raise funds through investors. A series of tax reliefs were introduced on investments made to companies that qualify for the criteria.
CGT relief is available when profits realised within three years are re-invested into the Seed Enterprise Investment Scheme. There are some complexities to accessing this relief including your tax rate, so it’s always advisable to consult a specialist.
ENTERPRISE INVESTMENT SCHEME (EIS)
Similar to the SEIS, the Enterprise Investment Scheme, or EIS, was created to help companies raise money to grow their businesses by offering tax reliefs to investors who buy shares in a company.
There are a number of reliefs associated with EIS, all of which are dependent on the state of the company in question. Again, it is advisable to discuss your plans with an expert before applying.
ENTREPRENEURS RELIEF (ER)
Now known as Business Asset Disposal Relief, Entrepreneurs Relief, or ER, allows relief or reduction of CGT liabilities when part or all of your business is sold.
Essentially, you will only be required to pay 10% CGT on profits from qualifying assets. These assets include, but are not limited to, the sale of all or part of your business and the sale of shares where you have at least 5% of share capital.
Your eligibility for Entrepreneurs Relief is dependent on the type of assets sold for profit. It is vital that you seek advice from a specialist, who will be able to guide you through ER in more detail.
OTHER CGT PLANNING CONSIDERATIONS
Aside from reliefs, there are other factors that you must consider when considering your CGT obligations.
Before 2015, UK non-residents didn’t need to pay CGT on any profits from assets. However, this has now changed. Even if you aren’t resident in the UK for tax purposes, you will need to pay CGT if you sell a residential property in the UK. If you have assets (perhaps a home or investments) which you have established whilst overseas it may be useful to sell or gift them whilst you are still non-resident to avoid CGT. The length of time you have spent abroad may also impact your exposure to CGT.
USING FULL ANNUAL EXEMPTION
Your annual CGT exemption allowance can’t be carried forward so you should try and use as much as you can each year.
FOR MORE INFORMATION
Our team of tax planning specialists have many years of experience in dealing with CGT. This complex subject can be very difficult to manage and organise on your own, and we can help ensure you are making use of the reliefs and exemptions available. To discuss your circumstances please get in touch with your nearest office.