Self-employed business owners and individuals who choose to dispose of anything that might be considered an ‘appreciating asset’ – such as commercial premises or a buy-to-let property – need to be aware of the complex rules governing Capital Gains Tax (CGT) in the UK.
CGT is a tax paid on the gain made when an asset is sold, gifted or ‘disposed of’ – and anything deemed a ‘chargeable asset’ can potentially incur a hefty tax bill if specialist advice is not sought in advance.
Typically, an individual will incur CGT when disposing of:
- Any property that is not their main residence.
- Shares that are not considered to be an ISA or PEP.
- Most personal possessions worth £6,000 or more (but not private motor vehicles or assets with a lifespan of fewer than 50 years).
It is worth noting that, in most cases, individuals will not incur CGT when disposing of their main residential property, due to a tax allowance known as private residence relief. However, if they have previously let out the property or used it for business purposes, it may still be partly liable for CGT. The same applies if the property is very large – as homes of more than 5,000 square metres (one acre) in total can fall foul of the private residence relief rules.
In comparison, business owners will often incur CGT on the disposal of business assets such as:
- Land and buildings.
- Some forms of plant and machinery.
- Fixtures and fittings.
- Registered trademarks.
- The business’ reputation (i.e. goodwill).
In all cases, individuals and business owners alike need to think very carefully when they are considering disposing of any assets. It is important to seek specialist tax advice in order to determine whether a disposal will be subject to CGT – and if any CGT liability can be mitigated.
Individuals should note that they will usually only need to pay CGT on gains above their Annual Exempt Amount or tax-free allowance for the year. This is set to rise to £12,000 – or £6,000 for trusts from 6 April 2019.
Similarly, business owners and individuals should be aware that they will generally not need to pay any tax on assets that are ‘gifted’ to a wife, husband or a civil partner.
In addition to this, self-employed business owners can benefit from Entrepreneur’s Relief – a tax relief which enables sole traders, business partners or those who hold shares in a ‘personal trading company’ to pay just 10 per cent CGT on qualifying gains if they sell all or part of their business. This is just one of the many tax reliefs available.
Get in touch with Macalvins to find out how we can help.