Perhaps stating the obvious, if one sells an asset at a profit then it will usually trigger a Capital Gains Tax liability.
That said, some assets are not chargeable assets at all and they can be disposed of without any tax charge.
Additionally, the sale of some assets will also qualify for various capital gains tax reliefs made available by the Government generally to encourage certain types of behaviour. These reliefs may exempt a gain in full or part or may defer the gain until a later event triggers the liability.
For example, over the last few decades, there have been tax reliefs, providing for a lower rate of tax, for entrepreneurs selling their businesses. Regardless of whether you feel this is the right thing or the wrong thing, it is clearly an ingrained policy of successive Governments that an entrepreneur should pay less tax in these circumstances – rather than, say, someone who sells a Picasso painting that has been hung on their wall for a couple of years.
Perhaps the most commonly encountered CGT relief will be main residence, or principal private residence relief, which exempts all or part of the gain on one’s home on sale.
It is perhaps fair to say that Capital Gains Tax is often more of a concern for high net worth individuals on the basis that they are perhaps more likely to hold assets which have appreciated in value.
Our view is that it is important for this type of client to consider what reliefs, if any, are available to reduce the taxable gain. I must stress the importance that such consideration should take place before the asset is sold!
As you would expect, we have experience in advising on a variety of CGT cases
For example, we recently advised a business owner who was disposing of shares in his personal trading company.
The company held a number of high-value investments in unconnected companies. We advised them on the necessary steps he had to take to ensure he was eligible for entrepreneurs’ relief, a relief which taxes gains at the reduced rate of 10%, compared with a potential tax rate of 20%. So essentially the advice halved his potential tax liability on the sale.
Recently, we’ve also advised BTL landlords on how to reduce their CGT liabilities on property sales. This has been of particular interest in the last year or two given the increasing tax burdens being placed on BTL landlords.
We have also advise clients on the tax benefits of making certain investments, known as EIS or SEIS investments to mitigate their CGT liability. These reliefs reduce taxable gains based on the value of proceeds reinvested in companies which are small, trading companies. The government introduced this relief to incentive taxpayers to invest in such companies.
Further, an individual’s tax status, whether he is resident or domiciled in the UK, will also have a significant impact on the tax position on the disposal of assets. As such, this does provide planning opportunities.
If you have any queries about CGT and / or considering a disposal of capital assets then please get in touch.