Tax Efficient

Capital Gains Tax

2 min read

Previously, disposals of UK residential properties are reported and any capital gains tax (CGT) calculated through your Self-assessment Tax Return.  The tax is therefore due for payment on the 31st January following the tax year of disposal.

What is changing?

This will all change for disposals of UK residential property after 6th April 2020 (the date of disposal is normally deemed to be the date of exchange). For these disposals, they must be reported to HM Revenue and Customs and the Capital Gains Tax paid within 30 days of the date of completion via the Capital Gains Tax on UK residential property service.

There is an exemption for the disposals where there is no tax to pay. Typically, these include properties that are covered by the main residence exemption; gains within the individual’s capital gains exemption or where there are losses from earlier capital disposals that reduce the gain below the exemption.

It is therefore vital to start collating information to compute the gain as soon as a disposal is anticipated.  In some cases, a disposal may require professional valuations to be obtained.

CGT liability

There are penalties for late filing of the information and payment of the Capital Gains Tax which follow the same rules as for self-assessment.

For those that do not normally file a Self-assessment Tax Return, there would be no need to do so in respect of the disposal. For those that do, they will need to disclose the gain on the Self-assessment Return as well.

When filing through the Capital Gains Tax in UK residential property service the tax payable is, in many cases, likely to be an estimated as it is not known the total income will be for the year or there may be later capital disposals the at affect the amount payable. The tax is therefore treated as a payment on account of the final liability which will be finalised either as an amendment via new service or disclosure of the final position on a self-assessment Tax Return.

The new rules apply to individuals, personal representatives and trustees.

How we can help

We are always on hand to answer any questions you may have about Capital Gains Tax. We can advise as to the best course of action in your own particular circumstances, so please do contact us.

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. Each comment posted by third party readers/subscribers of our website on topics of tax and accounting is their personal opinion and due professional care should be taken by you before you act after reading the contents of that post. No warranty whatsoever is made that any of the posts are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

 

Business Asset Disposal relief (Previously known as Entrepreneur’s Relief)

2 min read

Business Asset Disposal Relief, is available for those in business, which may reduce the tax rate on the first £1 million of qualifying lifetime gains to 10%.

This is targeted at working directors and employees who own at least 5% of the ordinary share capital of the company and the owners of unincorporated businesses.

BADR is available to individuals on the disposal after two complete qualifying years of:

  • all or part of a trading business carried on alone or in partnership
  • the assets of a trading business after cessation
  • shares in the individual’s ‘personal’ trading company
  • assets owned by the individual used by the individual’s personal trading company or trading partnership where the disposal is associated with a qualifying disposal of shares or partnership interest.

New 5% rules for company shareholders

To qualify for BADR, the company needs to be an individual’s personal company where the individual must:

  • be a company employee or office holder
  • hold at least 5% of the company’s ordinary share capital and
  • be able to exercise at least 5% of the voting rights.

For disposals on or after 29 October 2018, they must also satisfy one of the following tests:

  • a distribution test – an individual is entitled to at least 5% of the company’s profit available for distribution to equity holders and 5% of the assets available for distribution to equity holders in a winding up; or
  • a proceeds test – an individual is entitled to at least 5% of the proceeds in the event of a disposal of the whole of the ordinary share capital of the company.

Thought should be given to the structure of your company at the outset to ensure that the tax benefits of Business Asset Disposal Relief are not lost.

Investors’ Relief (IR)

If you do not meet the criteria for Business Asset Disposal Relief (BADR) you may still be able to take advantage of the ow 10% rate of tax through IR.

IR is available to 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:

•        shares must be newly issued and subscribed for by the individual for new consideration

•        be in an unlisted trading company, or an unlisted holding company of a trading group

•        have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016

•        have been held continuously for a period of three years before disposal.

An individual’s qualifying gains for IR are subject to a lifetime cap of £10 million.

Talk to us about your BADR planning

Loucas can help you to build a tax-efficient financial plan that ensures you are making the most of the reliefs and allowances available to you. 

If you would like to discuss any of the issues raised in this guide please call 01622 758257 or contact us.