Capital gains tax (CGT) is a tax levied on the profit earned from the sale of certain assets, such as property, investments, or business assets. However, the UK tax system offers various reliefs and exemptions designed to ease the CGT burden for individuals and businesses. In this blog, we will explore some of the key capital gains tax reliefs and exemptions available in the UK.
- Annual Exemption
One of the most fundamental reliefs is the Annual Exemption. In the tax year 2022/2023, individuals were entitled to a tax-free allowance of £12,300. This means that if your capital gains for the year are below this threshold, you won’t owe any CGT. Couples could potentially double this allowance if they owned assets jointly.
Main Residence Relief (Private Residence Relief)
Selling your primary residence is often a significant financial event, but it may not result in a CGT liability. Main Residence Relief exempts the gains made from the sale of your main home from CGT. However, certain conditions apply, including that you must have lived in the property as your main residence throughout your ownership.
Entrepreneur’s Relief (now Business Asset Disposal Relief)
Entrepreneur’s Relief was designed to support business owners. It allowed qualifying individuals to pay a reduced rate of 10% on the sale of all or part of their business, up to a lifetime limit of £10 million. This relief encouraged entrepreneurship and rewarded individuals for their hard work and risk-taking.
Investors’ Relief
Investors’ Relief aimed to encourage investments in unlisted trading companies. Investors meeting the criteria could enjoy a reduced 10% CGT rate on gains from the disposal of qualifying shares. This relief was also subject to certain conditions and limits.
Gift Hold-Over Relief
If you decide to gift certain assets, like business assets, to someone else, you may be able to defer the CGT liability using Gift Hold-Over Relief. This can be a valuable relief for passing on assets to family members or business partners.
Rollover Relief
Rollover Relief allowed individuals or businesses to defer CGT when selling certain business assets and reinvesting the proceeds in new qualifying assets. This relief helped businesses grow without the immediate tax burden of a capital gain.
Holdover Relief for Gifts of Business Assets
Similar to Gift Hold-Over Relief, Holdover Relief applies when you gift business assets (other than the business itself). It allows you to defer the CGT liability, facilitating family succession planning and business transfers.
Inheritance Tax Relief
Assets transferred between spouses and civil partners are generally exempt from CGT. Additionally, assets left to charity in a will are also CGT exempt. These exemptions ease the burden of CGT in cases of inheritance or bequests.
Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS)
Investors looking to support early-stage companies can benefit from tax incentives through VCTs and EIS. These schemes offer various CGT reliefs and exemptions to encourage investment in qualifying businesses.
Seed Enterprise Investment Scheme (SEIS)
SEIS is another initiative aimed at promoting investment in early-stage companies. Investors in SEIS-qualifying companies may enjoy significant CGT relief, making it an attractive option for those willing to take on higher-risk investments.
Conclusion
Navigating the complexities of capital gains tax in the UK can be challenging, but understanding the available reliefs and exemptions can help you manage your tax liability effectively. It’s crucial to stay updated with current tax laws and consult with a tax professional to ensure you are taking full advantage of these reliefs and exemptions while staying compliant with HMRC regulations. Whether you’re a business owner, investor, or homeowner, these reliefs can play a vital role in your overall financial planning.