Have a question? Like to know more? - Contact us or Call +44-1865 292200 or +44-20 7436 4773, Mon-Fri 8:15am - 5:15pm
Have a question? Like to know more? - Contact us or Call +44-1865 292200 or +44-20 7436 4773, Mon-Fri 8:15am - 5:15pm
3 minute read
Capital gains tax (CGT) made the headlines earlier this year when, to many people’s surprise, the then Chancellor George Osborne reduced the rates for 2016/17. With this in mind, we consider some of the key features of the current system.
Q. How is CGT charged?
A. As a basic rule, CGT is charged on the difference between what you paid for an asset and what you receive when you sell it, less your annual CGT exemption (£11,100 for 2016/17) if this has not been set against other gains.
The rate of CGT payable on gains depends on the level of the individual’s taxable income and gains for the tax year. Effectively, the rules operate by ensuring that any unused basic rate band (£32,000 in 2016/17) can be used in the most beneficial way to reduce the CGT charged.
The figure for total taxable income and gains is calculated after taking into account all allowable deductions including losses, personal allowances and the CGT annual exempt amount.
Q. What are the current rates?
A. Prior to 6 April 2016, CGT was charged at 18% where the individual was a basic rate taxpayer, or 28% to the extent that the individual was a higher rate taxpayer or the gains exceeded the unused part of an individual's basic rate band. However, in the 2016 Budget, the Chancellor announced that the 18% rate would be cut to 10%, while the 28% rate would fall to 20%. These changes came into effect from 6 April 2016.
Q. Do these new rates apply across the board?
A. No, the CGT rates remain at 18% and 28% for residential property gains, non-resident CGT gains, ATED-related gains and gains accruing under the carried interest rules.
Q. What about Entrepreneurs’ Relief (ER) and the new Investors’ Relief (IR)?
A. ER and IR may be available for certain business disposals and have the effect of charging the first £10 million of qualifying lifetime gains for both ER and IR at an effective rate of 10%.
IR applies where qualifying shares have been issued by an unlisted trading company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016. Many other rules and conditions apply, so please speak to us first to ensure that you maximise any relief.
Q. How can I minimise my liability to CGT?
A. The good news is that thereare a number of strategies that can help to mitigate a potential liability to CGT. Consider the following action points: