Posts Tagged ‘Capital Gains’

Tax free capital gains

Wednesday, April 19th, 2017

Is there such a thing as a tax-free capital gain? In fact, there is… Every UK resident tax payer is allowed to make tax-free gains of up to £11,300 during the current tax year, 2017-18.

Additionally, you can sell personal possessions and make a gain of up to £6,000 without paying capital gains tax (CGT). This includes a sale of the following items:

  • jewellery
  • paintings
  • antiques
  • coins and stamps
  • sets of things, e.g. matching vases or chessmen

You’ll need to work out your gain to find out whether you need to pay tax.

Finally, you won’t need to pay CGT on disposals of:

 

  • Gifts to your husband, wife, civil partner or a charity
  • Your car, unless you have used it in your business
  • Anything with a limited lifespan, e.g. household furniture
  • Gains on the sale of ISAs or PEPs
  • Sale of UK government gilts and Premium Bonds
  • Betting, lottery and pools winnings

And your home can be sold free of any CGT consideration as long as you have not let part the property at any time during your ownership, or you have not elected for a second property to be considered your principal private residence for tax purposes during the same period.

Further considerations to bear in mind:

  • When you inherit an asset, Inheritance Tax is usually paid by the estate of the person who’s died. You only have to work out if you need to pay Capital Gains Tax if you later dispose of the asset.
  • You may have to pay Capital Gains Tax even if your asset is overseas. There are special rules if you’re a UK resident but not ‘domiciled’ and claim the ‘remittance basis’.
  • You have to pay tax on gains you make on residential property in the UK even if you’re non-resident for tax purposes. You don’t pay Capital Gains Tax on other UK assets, e.g. shares in UK companies, unless you return to the UK within 5 years of leaving.

Capital gains tax planning 2016-17

Wednesday, January 4th, 2017

This is also an appropriate time of the year to consider your CGT position if you have already disposed of (or are considering a disposal) of an asset subject to CGT during 2016-17.

Most of our readers will be aware that they can make chargeable gains of up to £11,100 in the tax year 2016-17 and pay no CGT. This exemption cannot be transferred to a future tax year or carried back to a previous tax year if it is not utilised.

Many will also remember that it is no longer feasible to sell shares before 6 April 2017 in order to crystallise a CGT loss or a gain that is covered by the above exemption, if those shares, or part of them, are reacquired within 30 days of the disposal. However, it is still possible to reacquire holdings, within the 30 days period, if you use an ISA or self-invested personal pension (SIPP) to make the buy-back.

Transfers of chargeable assets for CGT purposes are exempt between spouses and civil partners. Also, the annual exemption is available to both parties. This combination means that couples may be able to share the gain on a disposal of assets and reduce their overall CGT charge.

This strategy, of transferring partial ownership to a spouse, can also reduce an overall CGT charge if the transferring partner/spouse is due to pay CGT at the higher 20% or 28% rate (as their gains fall to be taxed in the higher rate tax band) and the receiving partner/spouse would only be liable to pay CGT at the lower 10% or 18% (as their share of a transferred gain would fall into their free basic rate band).

The 10% and 20% rates apply from April 2016, but do not apply to disposals of residential property or carried interest – for these latter items, disposals are taxed at 18% to 28%, dependent on where the gains sit in the basic or higher rates bands.

And don’t forget, CGT is assessed and payable as part of your self-assessment. Any tax payable for 2016-17 will be due for payment 31 January 2018. On the same day you will also have to pay any other underpayment of income tax for 2016-17 and your first payment on account for 2017-18.

If you own assets that are subject to CGT on disposal, and you, and possibly your spouse, are struggling to fully utilise your CGT annual exemption, or you would like to discuss ways to minimise any CGT payable, please call to discuss your options.

Capital gains tax changes April 2016

Thursday, April 7th, 2016

One of the surprising announcements in the recent budget was the easing of capital gains tax (CGT) rates.

From April 2016, the new rates published by HMRC are:

Changes to rates.

Legislation will be introduced in Finance Bill 2016 to reduce the rate of CGT charged on most gains accruing to basic rate taxpayers from 18% to 10%.

For higher rate taxpayers, or those whose gains exceed the unused part of their basic rate tax band, the rate of CGT charged on most gains will be reduced from 28% to 20%.

The 28% and 18% rates will continue to apply for gains accruing on the disposal of interests in residential properties that do not qualify for Private Residence Relief, and the receipt of carried interest.

The rate of CGT charged on Annual Tax on Enveloped Dwellings related chargeable gains will continue to be 28%. These changes will have effect from 6 April 2016.

The annual exemption for CGT continues to be £11,100. This is the amount of gains an individual can make and still pay no CGT. Married couples both qualify for the annual exemption.

The lower 10% rate will apply to gains, that when added to your taxable income, still fall within the basic rate band. Once the basic rate band is exceeded any gains that fall into the higher rate band will be taxed at the higher 20% rate.

The 18% and 28% higher rates will continue to be applied to gains on the disposal of residential property that do not qualify as a principal private residence.

Capital Gains Tax changes

Thursday, April 7th, 2016

CGT rates have been significantly reduced from April 2016.

The rates at which capital gains are taxed depend on where they would fall to be taxed for Income Tax purposes if they were added to income. This would determine whether the gains would fall to be taxed at basic or higher rates, or part and part.

  • If at basic rates, gains will now be taxed at 10% instead of £18%
  • If at higher rates, gains will now be taxed at 20% instead of 28%.

These reductions will not apply to residential property sales of second homes or buy-to-let properties – the 2015-16 rates of 18% and 28% will continue to apply.

There is also a surprising change to Entrepreneurs’ Relief (ER). It is being extended to afford relief to investors in non-quoted companies. The revisions will introduce the following change to legislation:

“The extension to ER, introducing investors’ relief, will apply to gains accruing on the disposal of certain qualifying shares by individuals (other than employees and officers of the company). In order to qualify for relief, a share must:

  • be newly issued, having been acquired by the person making the disposal on subscription for new consideration
  • be in an unlisted trading company, or unlisted holding company of 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 continually for a period of three years before disposal

The rate of CGT charged on the qualifying gain will be 10%, with the total amount of gains eligible for investors’ relief subject to a lifetime cap of £10 million per individual. Rules will ensure that this limit applies to beneficiaries of trusts.

Because the relief is designed to attract new capital into companies, avoidance rules set out in the legislation will ensure that shares must be subscribed for by individuals for genuine commercial purposes and not for tax avoidance purposes.

This is a welcome change, and one that should stimulate interest from investors in smaller concerns that would otherwise struggle to attract inward investment.

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