Tax Advice | Allen & Atherton

Allen & Atherton’s brief guide to Capital Gains Tax for 2023

Capital Gains Tax

Capital Gains Tax (CGT) is a tax applied to the profit (gain) made when selling an asset and is applied to most gains made in excess of your yearly tax-free allowance. Allen & Atherton has many years of experience in dealing with complex Capital Gains cases.

Our expert accountants can help you with:

  • selling your buy-to-let property
  • transferring properties to your children in a tax-efficient way
  • restructuring businesses
  • advising on shares
  • advice on trusts
  • advice for non-UK residents
  • advice on overseas properties
  • offsetting Capital Gains Tax losses

Capital Gains due on the profits received from selling a business, shares or property commonly exceeds your tax-free allowance. This means that seeking expert advice to minimize your tax bill is absolutely essential.

Capital Gains Annual Allowance

The Capital Gains Annual Allowance is the amount of gains an individual can make within a tax year from the sale of assets without paying tax. Married couples can sometimes pool their allowances, and individuals and businesses should utilize the full amount, if possible, for maximum financial benefit. Importantly, there are some government schemes, such as the EIS, where investments are completely free of CGT.

In the current tax year, the Capital Gains Tax allowance is £12,300, up from £12,000 the year before. However, this amount is dropping to £6,000 from April 2023, and then will be cut further to just £3,000 from April 2024. This further illustrates the need for careful tax planning, for example by ensuring that you crystallize gains in a favorable tax year.

Capital Gains Tax advice for individuals

Allen & Atherton is highly experienced in advising individuals on their personal CGT liabilities, including:

  • disposal of personal possessions
  • disposing of shares
  • selling a second property, such as a buy-to-let or inheritance

Whatever your circumstance, we offer expert advice in order to find the most tax-efficient way to minimise your tax burden.

Capital Gains Tax advice for businesses

Allen & Atherton’s corporate team is here to advise directors and shareholders on any Capital Gains tax liabilities which may arise, including when any of the following are sold:

  • land and buildings
  • fixtures and fittings
  • plants and machinery
  • shares
  • registered trademarks
  • selling the goodwill of a company

Business Asset Disposal Relief (BADR)

Business Asset Disposal Relief is a relief which reduces the amount of Capital Gains Tax due when a business (or one part of a business) is sold, down to 10% in qualifying circumstances.

As usual, there are strict rules governing BADR. You must be a sole trader or business partner, and have owned the business for a minimum of two years. And the assets must have been disposed of within three years to qualify.

BADR also applies to the sale of securities and shares. In order to qualify, the business must be a trading company, and for at least two years up to thee disposal date, you must be an employee or office holder at the company.

The business must also be a personal company for a minimum of two years before you sell your shares, where you have at least 5% of the shares, and 5% of the voting rights, and are entitled to at least 5% of either the profits or disposal proceeds.

These rules are in place to ensure that BADR remains as a reward for true entrepreneurship rather than being used artificially to reduce one’s tax burden. However, in some cases it is still possible to successfully claim BADR even where your shares fall below 5%. We can advise on whether this may apply to you.

In addition, we can advise on highly complex BADR rules surrounding Enterprise Management Incentive shares, in addition to scenarios including when a company stops trading, or if you are selling assets lent to a business. BADR is usually fairly straightforward; but can become extremely intricate if complicating factors are involved.

Capital Gains Tax on shares

CGT applicable to shares is dependent on your tax band but is either at 10% or 20%. Most people seeking advice will be in the higher 20% bracket. You will need to pay CGT on the profit of sold shares unless they are held in a tax wrapper such as an ISA or SIPP. CGT may also be applicable when selling investment trusts or funds, but this is a very complex area of taxation law.

Rules for shares and unit trusts

If you acquire identical shares or units at different times, HMRC will assume that these are disposed of in a strict order. Understanding this is key to working out your capital gains tax bill correctly, and is often a source of financial stress as it is easy to get this fundamental wrong.

For brevity, the rules state that the shares or units you are selling must be matched to the ones bought, in the exact same order. And for context, those purchased on the same day and also those purchased within the subsequent 30 days are treated as being held in a pool and acquired at their average price.

There are other special rules, including for CFDs, but these go beyond the scope of this article.

Capital Gains Tax for landlords

As a landlord or property investor, there are many tax-related aspects to consider, especially when starting out. In particular, you will need to decide whether to hold property personally or through a limited company; and this choice will be different dependent on independent circumstances.

Fortunately, our expert team is on hand to help minimise your tax burden, while simultaneously increasing profitability. Many landlords do not have the expertise required to offset CGT effectively, meaning they are paying higher CGT bills than necessary. We can help to structure disposals in a tax-efficient way, utilising several of the offset reliefs available. While the rules can be complex, we are happy to advise you through any pitfalls.

Private Residence Relief (PRR) is available when you rent out a property that was once your main residence, and is often popular for people who have moved into their partner’s home. PRR remains available for the amount of time you lived in the residence, in addition to a 9-month grace period up to when you sold it. This remains true regardless of whether you lived in the property during this period, and even if it was rented out.

However, the grace period used to be 18 months up until recently, so there may be a further tightening on the rules soon. But applying this relief correctly can considerably reduce CGT when disposing of a former main residence.

Lettings Relief used to be an extremely generous scheme, but was significantly changed from April 2020. Nowadays, it is only suitable for the disabled, those in a care home, or in situations where the owner of the property is in shared accommodation with a tenant.

The relief can be worth up to £40,000, per person per property, and can be applied in addition to PRR where relevant. It is worth the lower of the amount of private residence relief available in respect of the letting of the property, £40,000, or the amount of the gain arising by reason of the letting.

UK residents also pay CGT when selling overseas properties, though special rules apply to non-domiciles. If are a non-UK resident but return to the UK within five years of leaving, you may have to pay UK tax on the disposal of overseas properties. This is a very complex legal grey area, as you may also have to pay tax in the country where the gain was made, and it is sometimes possible to claim relief in either or both countries.

It is a legal requirement to pay any CGT due on the sale of a residential property within a maximum of 60 days, enforced by penalties and interest charges. This can catch some unaware as many only find this rule out when filing their self-assessment at the end of the tax year. Inherited properties become subject to CGT upon sale and can also qualify for PRR or Lettings Relief where appropriate.

HMRC must be notified within 30 days of selling a property, with a payment made on account for the full amount within the same time period. Importantly, a Capital Gains Tax on UK property account needs to be set up before this tax can be reported and paid.

Capital Gains losses

If you make a loss on a chargeable asset, you can offset this loss against your total capital gains within the tax year. And if your gains are still above the tax-free allowance, you can bring forward losses from previous years, and also carry forward remaining losses to future years.  Losses can be claimed up to four years after the end of the tax year in which the disposal occurred. As usual, exceptions apply.

Special cases

Like many areas of taxation, there are several circumstances where special rules apply. This includes:

  • when somebody dies
  • for non-UK residents disposing of UK property or land
  • for individuals who have temporary lived abroad as a non-resident
  • overseas assets for the non-domiciled in the UK, if they have claimed under the remittance basis
  • income from shares in certain circumstances

We are well placed to help you to understand these rules and to advise on how best to minimise your personal tax bill. However, as these cases are so specialised, going into generic detail here is not likely to be helpful.

Contact Allen & Atherton today

Allen & Atherton Ltd

The Gherkin, 30 St. Mary Axe, London

EC3A 8BF, United Kingdom

+44 (0) 207 205 2186

+44 (0) 207 205 2184

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