Capital Gains Tax
When considering your liability to capital gains tax, we will always make sure you can get the most out of the available allowances, reliefs, and deductions.
Where possible, it is good practice to obtain advice prior to selling or disposing of your assets as with careful planning it may be possible to reduce, defer, or mitigate capital gains tax due by taking action in advance. This is particularly important if you intend to leave the UK or arrive from overseas.
We can also prepare the necessary paperwork to report gains and losses to HMRC, so you can rest assured that you have met all your compliance obligations.
Common Capital Gains Reliefs
- Principal Private Residence Relief on the sale of your main residence;
- Lettings Relief on the sale of your main residence when it has been let out;
- Gift Hold-Over Relief may apply where you gift business assets to an individual or transfer assets into a trust;
- Incorporation Relief on the incorporation of your sole trade or partnership;
- Disincorporation Relief on the transfer of a company’s assets to its shareholders
- Roll-Over Relief on the replacement of business assets;
- Investors’ Relief on the sale of certain shares acquired by subscription;
- Entrepreneurs’ Relief on the sale of business assets – see below for further details.
Entrepreneurs’ Relief
Entrepreneurs’ Relief (often abbreviated to “ER”) is a valuable capital gains tax relief which may be available when you sell all or part of your business.
Provided that the relevant conditions are met, the effect of the relief is to reduce the rate of capital gains tax to 10% on the entirety of the gain.
As this is such a precious relief for entrepreneurs, PD Tax recommend that regular reviews are undertaken to ensure that you and your business meet the necessary requirements. We can advise you on whether you qualify for the relief, and if not, recommend steps you can take to ensure that you are eligible on a future sale.
The Problem
The client inherited a property from her parents many years ago. She was keen to gift the property to her three children but was worried about having to pay capital gains tax on the gift.
As she had never lived in the property she was not eligible for private residence relief (PRR).
The Solution
We provided the client with an illustrative calculation of the capital gains tax she would suffer on the gift to her children assuming that no other steps were taken prior to the gift.
Once the level of the tax at stake was quantified we could provide the client with a number of solutions to mitigate the upfront capital gains tax cost including:
- Payment of the capital gains tax by instalments over 10 years,
- Living in the property as her main residence for a period of time prior to the gift so that part of the gain could be exempted through private residence relief,
- Transferring the property into a discretionary trust for the benefit of her three children. The property could either be retained in the trust or the trustees could choose to distribute the property to the children.
The Result
The availability of holdover relief for transfers into and out of a discretionary trust meant that it was possible to transfer the property to the three children without incurring an immediate liability to capital gains tax.
A tax saving of over £25,000 as compared to an outright gift.