Capital Gains Tax

At Ahaccountants, we understand that dealing with capital gains tax can seem complicated, but we’re here to help you navigate it and take advantage of the available reliefs. If you’re based in the Nottingham area, we can provide personalized tax advice to ensure you make the most of these opportunities.

What is Capital Gains Tax (CGT)?

Capital gains tax (CGT) is applied when you sell certain assets for a profit. The gain is the difference between what you sold the asset for (after selling costs) and what you originally paid for it (including any acquisition costs).

Current CGT Rates

Currently, CGT is charged at 10% on gains if your combined taxable gains and income are within the basic rate income tax band. If your gains push you above this band, the rate rises to 20%, with a few exceptions (which we’ll explain later).

Business Asset Disposal Relief (BADR)

Formerly known as Entrepreneurs’ Relief, BADR can reduce the CGT rate to 10% on qualifying business disposals, up to a lifetime limit of £1 million. This relief is designed for individuals selling all or part of a business, shares in their personal company, or assets used in a business within the last three years.

If you sell an asset used by a business or partnership in which you’re involved, you might also qualify for this relief, although there are restrictions, especially if you’re receiving rent from the business.

One key condition: you need to have owned the business or shares for at least two years before selling to qualify.

Qualifying for BADR as a Shareholder

To qualify for BADR when selling shares, you need to own at least 5% of your company’s shares and voting rights, and meet certain conditions for profit distribution or sale proceeds.

Even if your shareholding drops below 5% due to new shares being issued to raise funds, you can still claim BADR with careful planning. If this is something that might affect you, we can discuss how to preserve your relief.

Investors’ Relief (IR)

If you’re an external investor in an unlisted trading company, Investors’ Relief (IR) might apply, allowing you to benefit from a 10% CGT rate. To qualify, you need to have subscribed to newly issued shares and held them for at least three years. The lifetime limit for IR is capped at £10 million in gains.

Annual CGT Exemption

Each year, you’re allowed to make a certain amount of gains before CGT kicks in. For 2024/25, the annual exemption is £3,000 (down from £6,000 in 2023/24). It’s worth considering how to make the most of this exemption, especially if you’re married or in a civil partnership, as both partners can utilize the exemption.

Special CGT Rates

While the standard rates are 10% and 20%, some assets—like carried interest and certain residential properties—are taxed at higher rates of 18% and 24%.

Complex Areas and Additional Reliefs

CGT can also apply in more complex situations, like with gains on shares in Enterprise Investment Schemes (EIS), Venture Capital Trusts, or deferred gains from share exchanges. It’s essential to get advice before making decisions in these areas.

Don’t forget about other reliefs you might be eligible for, such as:

• Private residence relief for your main home
• Business asset rollover relief, which lets you defer gains by reinvesting in new business assets
• Business asset gift relief, allowing you to pass on business assets without immediate CGT
• Carrying forward unused losses to offset against future gains

How We Can Help

Planning ahead is crucial to managing your CGT liabilities effectively. If you live in the Nottingham area and are thinking about selling assets, contact us at Ahaccountants. We’d be happy to explore your options and help you make the most of the available reliefs.