To ensure the impact of this tax is as small as possible please contact us for planning advice prior to the of any asset. Care must be taken when considering such disposals likely to produce a capital gain. There are many facets involved meaning that calculating a gain, and planning to reduce it, can be very complex.
>> NOTES > Major changes to the rules took place on 6th April 2008 and 6th April 2020.
From 6th April 2008 "Indexation" and "Taper Reliefs" for individuals are abolished from that date. Please consult us for specific advice on how the new rules will affect your own situation.
From 6th April 2020 all disposals of residential property, dwelling property, MUST be notified to HMRC within 30 days of disposal AND and Capital Gains Tax due MUST also be paid within the same 30 days.
For a brief overview of each factor bearing on capital gains please scroll down to any of the following subjects that are of interest.
Rates of charge
Residency Disposal of business assets
Tax is chargeable on profits made from any disposal or a chargeable asset by a person "resident or ordinarily resident" (as defined) in the UK. Rules were introduced in the UK by the Finance Act 1965 and the latest consolidated legislation is the Chargeable Gains Act 1992 (TGCA) Many amendments have been made to the legislation, most notably the "rebasing" of the start date for this tax from 6th April 1965 to 31st March 1982. Unrealised gains attributed to the intervening period are, prima facie, not taxed.
Special rules apply at all times to transactions in stocks and shares and to other assets held at 31st March 1982.
Included are any and all types of property wherever located and will include (but not be limited to) land, buildings, stocks/shares, collections and other traded items. Also, included will be assets of a more intangible nature (e.g. goodwill, options, rights, debts) and non sterling currency.
For the tax year 2020/21, the first £12,300 of chargeable gains is exempt. This is granted to individuals and personal representatives (for the year of death and following two years). Most trusts, generally, qualify for an annual exemption of half this amount.
Rates of charge
Individuals: Taxable gains are subject to a tax charge between 10% and 28% depending on (a) the the nature of the asset
disposed of and (b) the highest rate of tax paid generally by the disposor personally.
Companies are subject to, broadly speaking, the same rules for calculating capital gains, but the rates of charge, indexation relief and other topics will differ. Essentially, companies pay corporation tax on gains and indexation relief continues beyond 31st March 1998.
Although "disposal" will be the trigger for charging this tax, the legislation does not define it. The word therefore taken its normal meaning but, as you will not be surprised to learn, case law and other factors have worked through the years to establish parameters. Due to complexities in this area, we do not feel able to go into great details here and must recommended contacting us for special advice. Tax is charged with reference to the tax year which includes the date of disposal. The exact date for contractual disposal is therefore of prime importance. If a disposal is to be made late in the tax year, it may be worth considering delaying until early in the next tax year. Such a change could grant a twelve month delay in the tax becoming payable, thereby improve cash flow and earn another year's interest.
Both are basically calculated in the same way and the steps to be followed are these:
1. Total proceeds of disposal
Less: ancillary costs of disposal (agent's commission, statutory fees etc.)
= Net Proceeds
2. To acquisition price/cost/value
Add: ancillary costs of acquisition (stamp duty, professional fees etc.)
= Total costs
If 1. less 2. results in a loss no further calculations are necessary.
If the result is a gain:
IF the gain arose before 6th April 2008 apply official RPI indexation figures to the total costs (in 2.) from acquisition date to disposal date (or, if earlier, 31st March 1998 if disposal is by an individuals).
Net proceeds (1.) less costs (2.) less indexation = TAXABLE GAIN
There are other deductions and reliefs which can be claimed to reduce the gain still further most notably the annual personal exemption and special exemptions applying to dwelling houses.
Specific rules to non-resident or non-UK-domiciled persons and to persons with temporary residence/non-residence in the United Kingdom. The minimum condition, to escape the tax, is that an individual must be resident outside the United Kingdom for "five years" (as defined).
Non-resident people who own private dwelling homes in the UK become subject to NEW Capital Gains Tax rules on disposal of such property after 6th April 2015. Care and planning is advised here. Property revaluation and complex calculation options need to be considered careufully to achieve the lowest tax charge possible.
DISPOSAL OF BUSINESS ASSETS
In essence this relief allows the first £1M* of gains on the disposal of a business (known as the "lifetime limit") to be charged at an effective rate of 10% Capital Gains Tax.
* This is a huge reduction in the 2020 Budget, down from £10M..
However there are many restrictions and conditions on which types of disposals would qualify for this relief. This may result in many business and individuals owning assets with locked in capital gains seeing their tax bills rise on disposal of such assets.
Note that this new "Entrepreneurs' Relief" is not available to everyone and is not awarded automatically. It must be organised, planned well in advance and properly claimed. So don't forget.
This would give a real tax rate of only 10% to a 40% taxpayer.
Note that Business Asset Taper Relief, "BATR",was abolished from 6th April 2008.
This relief became of increasing value to businesses as time passed. Qualifying taxable business gains were reduced over time and, after only 2 years, it was possible that 75% of gains could be taken tax free.
NEW: MANY SHARES OWNED BY EMPLOYEES IN THEIR EMPLOYER'S COMPANY ALSO QUALIFY FOR THIS REDUCED RATE.
Property owned personally but rented to the company is subject to special rules.