What is Capital Gains Tax?

Individuals and trustees who dispose of assets that are chargeable assets for Capital Gains Tax (‘CGT’) purposes need to be aware of the complex tax rules that can apply.

Chargeable assets can include (but not limited to): land and buildings; business assets; stocks and shares; crypto currencies; and certain personal possessions.

Disposals for this purpose include disposals by way of sale or gift, and so specialist advice should be sought before any disposals of chargeable assets are made so as to manage any unwelcome tax bills.

Individual taxpayers are entitled to a CGT-free allowances each year – being £11,700 in respect of the 2018/19 tax year, and £12,000 in respect of the 2019/20 tax year (reducing to £5,850 and £6,000 respectively for trustees).

The rate of CGT is 20% or 10% insofar that the taxpayer’s basic rate band for income tax is available. These CGT rates increase to 28% and 18% respectively in respect of chargeable gains arising on the disposal of residential property.

Certain reliefs can however apply in relation to disposals of chargeable assets in order to reduce CGT bills, including (but not limited to):

  • Entrepreneurs’ relief (‘ER’) in relation to qualifying disposals of business assets. Chargeable gains that qualify for ER are taxed at an attractive 10% rate of CGT (up to a £10 million lifetime allowance of qualifying gains).  Whilst trustees do not qualify for ER per se, they can utilise the ER lifetime allowance of qualifying beneficiaries in certain instances;
  • Main residence relief which can exempt all or part of a chargeable gain arising on the disposal of a residential property which has been used as the taxpayer’s only and / or main residence during their period of ownership;
  • Gift relief which can apply in respect of certain gifts and can defer the CGT charge on the chargeable gain until the transferee’s subsequent disposal of the asset; and
  • Rollover relief which can apply to ‘rollover’ chargeable gains on the acquisition of certain business assets within a set time frame.

If you have any questions or would like any further information then please get in touch with Smailes Goldie to find out how we can help.