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Capital Gains Tax is levied on gains arising from the ‘disposal’ of certain assets.
Basic rate tax payers are charged at 10%, whereas higher and additional rate tax payers must pay 20%. Each UK resident is given an annual allowance/exemption at £12,000 per annum (2019/20). NB Surchage of £8% applies for residential property and carried interest.
For our private clients, disposals typically take the shape of selling shares in collective investments or the sale of a buy-to-let property.
Care should be taken as certain transfer of ownership of assets may also attract CGT at your highest rate. Disposals that can give rise to CGT might take the form of:
Exempt assets are free from CGT, whilst reliefs operate to reduce or eliminate a CGT liability in the event of the sale or disposal of certain types of assets, such as businesses.
The sale of your private residential home does not incur a CGT liability in most circumstances. If you have more than one house, we can advise you as to the best way to proceed.
The way in which tax charges (or tax relief, as appropriate) are applied depends upon individual circumstances.
This information is based on our understanding of current HMRC rules and practice. Tax rules and allowances are not guaranteed and may change in the future.
The FCA does not regulate certain tax planning activities and services.
When you sell qualifying assets (i.e. a business) your first £10,000,000 of gains are taxed at a rate of 10%.
This is a lifetime limit and, for those who build and sell businesses on a serial basis, you can utilise part of this relief with each business sale until you have reached your limit.
Make sure you claim back allowable payments for eg payments to personal pensions are made net of basic rate tax and so immediately attract tax relief at 20%.
However, for those paying higher rate tax at 40% or additional rate tax at 45%, there may be more tax to claim. Higher rate individuals may be able to claim a further £100 for every £400 paid while further rate taxpayers paying 45% income tax who may be owed £125
‘Carry forward’ rules mean it is now also possible for some individuals to carry forward unused pension annual allowances from the three previous tax years to be used against this year’s gross income.
If you earn more than £40000 per annum you can pay this full amount into a pension plan and claim tax relief immediately of £18000.
Each year all UK residents aged 18 or over (16 for cash ISA) are given a new allowance but if unused, it is lost.
The allowance for 2019/2020 is £20,000 – and it is up to you how much of this to allocate to investments and how much to hold in cash.
Those that have saved every year since the inception of PEPs in 1986 were introduced in 1986 have managed to accumulate over £1m in this tax free environment, the so called ‘ISA millionaires’.
In any full tax year married couples have the opportunity to transfer assets between one another, often with no immediate tax considerations which can provide important income and capital gains tax planning possibilities.
Moving assets across into investments that are exempt from capital gains tax (although care must be taken as any sales to move investments are likely to be disposals subject to CGT)
Timing disposals to spread gains across more than one tax year whenever possible (this means that part of the gain is taken in one tax year, and part in the next, allowing you to use two CGT annual exemption allowances.
Transferring assets between spouses so that both annual exemptions can be used in future disposals
The annual CGT exemption is £12,000 (2019/20) which cannot be carried forward so if not used, it will also be lost.
If no planning is implemented, gains tend to roll up until final disposal at which point a tax charge is levied on the total final gain without any possibility to use past exemptions. Basic rate tax payers are charged 10% on gains while higher rate tax payers are charged 20%.
Get in touch to find out more about our specialist tax planning services.
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