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Calculating your CGT liability
The taxable gain is measured simply by comparing net proceeds with total cost (including costs of acquisition and enhancement expenditure). The rate of tax depends on your overall income and gains position for 2021/22. Gains will be taxed at 10%
to the extent that your taxable income and gains fall within the upper limit of the income tax basic rate band and 20% thereafter. These CGT rates are increased to 18% and 28% for ‘carried interest’ and gains on residential property.
A special tax relief, Business Asset Disposal Relief (BADR), is available for those in business, which may reduce the tax rate on the first £1 million of qualifying lifetime gains to 10%. This is targeted at working directors and employees who own at least 5% of the ordinary share capital of the company and the owners of unincorporated businesses.
The relief is available to individuals on the disposal after two complete qualifying years of:
y all or part of a trading business carried on alone or in partnership
y the assets of a trading business after cessation
y shares in the individual’s ‘personal’ trading company
y assets owned by the individual used by the individual’s personal trading company or trading partnership where the disposal is associated with a qualifying disposal of shares or partnership interest.
5% rules for company shareholders
To qualify for BADR, the company needs to be an individual’s personal company where the individual must:
y be a company employee or office holder
y hold at least 5% of the company’s ordinary share capital; and y be able to exercise at least 5% of the voting rights.
They must also satisfy one of the following tests:
y a distribution test – an individual is entitled to at least 5% of the company's profit available for distribution to equity holders and 5% of the assets available for distribution to equity holders in a winding up; or
y a proceeds test – an individual is entitled to at least 5% of the proceeds in the event of a disposal of the whole of the ordinary share capital of the company.
All planned transactions require careful scrutiny to ensure that the available BADR is maximised. Remember to keep us in the picture – we are best placed to help and advise if you involve us at an early stage. Investors’ Relief (IR) also provides a 10% rate with a lifetime limit of £10 million for each individual. The main beneficiaries of this relief are external investors in unquoted trading companies.
CGT and non-residents
CGT is normally only chargeable where the taxpayer is resident in the UK in the tax year the gain arose, although the provisions of any double taxation treaty need to be checked. CGT may
be avoided, provided the taxpayer becomes non-UK resident before the disposal and remains non-resident for tax purposes for five complete tax years.
CGT and death
There is no liability to CGT on any asset appreciation at your death.
Inheritance tax (IHT) and your business
Lifetime transfers – For the business owner, the vital elements in the IHT regime are the reliefs on business and agricultural property (up to 100%), which continue to afford exemption on the transfer of qualifying property, or a qualifying shareholding.
Transfers on your death – Remember to take into account your business interests when you draw up your Will. While reliefs may mean that there is little or no IHT to pay on your death, your Will is your route to directing the value of your business to your chosen heir(s) unless the disposition of your business interest on your death is covered by your partnership or shareholders’ agreement.
Your next steps: contact us to discuss...
y Getting your business ready for sale and minimising the tax due
y Identifying successors within the business y Exploring possible purchasers
y Valuing your business
y Timing the sale and maximising the sale price
y Planning your transition to your next venture
y Providing for a transfer of your business interests at your death or in the event that you become incapacitated
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