Capital Gains Tax Advice

What is Capital Gains Tax?

A Capital Gain arises when a capital asset is disposed of at a profit. UK residents and domiciled individuals are taxed on their worldwide income and gains. This also applies to Non-Residents with property in the United Kingdom (UK).

The disposal date isn’t necessarily when you physically receive the money; it can be when contracts are exchanged like when purchasing residential property.

From 6 April 2020, UK resident individuals disposing of residential property (where a tax charge arises) will need to report the disposal and pay any Capital Gains Tax during the tax year.  This timeframe is now within 60 [changed from 30] days of completion. This has been the case for non-UK residents since April 2015. This now applies to non-UK resident individuals with regard to all types of land and property disposals (rebased at April 2019), unless an exemption applies.

Certain assets which have a useful life not exceeding 50 years are exempt from Capital Gains Tax unless they have been used in a trade like racehorses, computers, plant and machinery, which includes items such as clocks and watches.

 

How much is Capital Gains Tax?

The rate of Capital Gains Tax varies dependent on a number of factors and interacts with your Income.  The level of your worldwide income will dictate which tax band you will fall within.  After the Annual Exemption (where no tax falls due), the rates are:

For standard gains, including Non-Residential Property

  • Basic Rate 10%
  • Higher Rate 20%

For Residential Property

  • Basic Rate 18% (10% + 8%),
  • Higher Rate 24% (20% + 4%) from 24/25; (28% in 23/24 tax year)

The rates above are for individuals.  Companies pay Capital Gains Taxation through Corporation Tax.  Indexation was abolished on 1st January 2018.  If your assets have been accruing the indexation allowance they will keep this but it will be linked to the Retail Price Index up to December 2017, irrespective of your future date of disposal.

When do you need to declare Capital Gains Tax to HMRC?

There are two thresholds when an individual needs to notify HMRC of a Capital Disposal you have made.  These are:

  • When your gains exceed the CGT Annual Exemption, which is £6,000 in 23/24 and £3,000 in 24/25.
  • When your total proceeds (disposals or sales) of the Capital Asset exceeds £50,000.
  • Any non-Resident disposing of property must report the sale to HMRC within 60 days of completion.
  • Any UK resident disposing of property must report the sale to HMRC within 60 days of completion.

For Landlords or Non-Residents, it is vitally important to report the sale of to HMRC otherwise penalties will be charged. 

 
 

How can I save Capital Gains Tax?

The timing of a Capital Disposal is always an important consideration with regards to Capital Gains Tax, as explained below.

In addition to reliefs and exemptions in the next sections, if you have a spouse earning less than yourself, it may be worthwhile transferring an asset or share of such to one another to help mitigate Capital Gains Tax.

You must be careful when transferring assets, especially to family members as this can still trigger other taxes or Capital Gains Tax if not carried out in a tax efficient manner.

We would therefore highly recommend you speak with us to obtain the appropriate tax advice.

What Reliefs are there for Capital Gains Tax?

There are many different reliefs available to either individuals or companies, some of these include:

  • Entrepreneurs Relief,
  • Inter spouse or civil partnership no gain no loss transfers,
  • Rollover Relief,
  • Gift Relief,
  • Incorporation Relief,
  • Disincorporation Relief,
  • EIS, SEIS, VCT and Social Enterprise Reinvestment Relief,
  • Principal Private Residence Relief,
  • Lettings Relief,
  • S.131 whereby a capital loss may be set against income tax.
 
 

Why is the timing of a Capital sale important?

Dates are critical when making a disposal and it is often imperative to consult accountants or tax advisors to assist you with this transaction before it is planned to take place.

Getting the timing right can eliminate, save or delay taxation.

Getting the timing wrong could lead to a higher Capital Gains Tax Rate and also bring your payment date forward by up to 12 months, when you could have used the funds from the Capital Gain to generate additional income or gains. 

Are there any other special Rules?

There are also many different and special tax laws relating to Capital Gains, such as

  • Chattels,
  • Connected Person Transactions,
  • Share Trading – article here (incl. Cryptocurrencies),
  • Divorce, is an area where there are special rules, with some reliefs that are not widely known
  • Time limits in order to make a relief or loss relief claim with HM Revenue & Customs.
 
 

Capital Gains Tax Planning and what else to consider

Capital Gains Tax losses are automatically set off against other gains within the same tax year.  Any remaining losses are carried forward to the next year. Capital losses cannot be carried back and offset against gains from prior tax years.

You may wish to consider the timing of these by bringing forward or delaying a Capital loss to maximise their usage rather than potentially letting them go to waste.

Capital Gains Tax is a vast tax with different laws, so feel free to contact us for further Capital Gains tax and planning advice.

How have we helped to Save Property Capital Gains Tax

Mr A was awarded a right on a divorce. This right was over a property, which would entitle him to a share of the proceeds when it was sold. This disposal would create a Capital Gains charge. Through gifting some of this right to his new spouse prior to the sale, we helped him save £4,356 of CGT. This more than outweighed our fees for the advice and work.

We have assisted many of our clients to mitigate their tax liabilities. For details on how we have helped save property owners Capital Gains Tax see our Property page.

 
 

How have we helped to Save Capital Gains Tax on Restricted Share Units

Mrs B had been awarded Restricted Share Units via her employment.  She and her husband were looking to sell the shares, which had gained in value by £166k in order to buy a property to live in.

We assisted with providing a report detailing the tax savings, created the paperwork and an Excel Calculator to help them with how many shares to sell, as there were 2 variables being the share price and exchange rate, so the figures we had provided could change by the time they were going to make the sale.

From our tax planning advice we assisted them in saving from in the region of £9,500 to £12,000 in capital gains tax.  Our fees were more than outweighed by the tax saving.

Restricted Share Units Article

How have we helped to Save Capital Gains Tax on Shares

Mr C had two share holding that he was going to realise a large gain at the higher Capital Gains tax rate of 20%.  After speaking with him about this potential sale, we advised him if he transferred (no gain no loss) a percentage to his wife who was on maternity leave they could save £6,230 in Capital Gain Tax than if he had just held the shares and had sold them before transferring them to his wife.