Capital Gains Tax
What is Capital Gains Tax ?
When you dispose of a capital asset at a profit, you have to pay Capital Gains Tax (CGT) on the excess of the Annual Exemption of £6,000 (23/24) at 10%, 20%, or 18%, 28% ( reduced to 24% from 24/25 on residential property) and pay by 31st of January following the tax year.
A disposal arises when you gift an asset apart from cash and except at death, or loss/destruction of an asset.
Exempt Assets for CGT are cars, wasting chattels, Gilts, shares in ISA, EIS, SEIS & VCTs.
CGT is exempt on transfers between spouses.
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Business Assets Disposal Relief (BADR)
Business Assets Disposal Relief (BADR) is a Capital Gains Tax (CGT) relief when you sell or give away your business where :
1. A ‘material disposal’ of business assets that you own for 2 year prior to sale or cessation.
2. ‘associated’ asset with a material disposal, which was used for business and sold within 3 years of the cessation.
Hence, you are eligible for BADR for following cases:
a. selling the whole or part of a sole traders’ and partners’ business or
b. selling shares in a personal trading company being director or employee owing at least 5% voting rights and work for two years and
- A 5% interest in the distributable profits of the company and
- A 5% interest the assets available for distribution to equity holders in a winding up
c. selling EMI options shares providing 2 years from the grant.
With BADR, you pay for CGT at flat rate 10% up to £1 million on the disposal on/after 11 March 2020 regardless your earning.
You should claim BADR within 12 month following year from the tax due.
Private Residence Relief (PRR)
When you dispose of your only or main resident, you can claim Private Residence Relief and a gain will only arise where you have been absent from the property at some point during your ownership.
Qualifying Private Residence Relief is a dwelling house including garden and grounds not exceeding HALF A HECTARE. HMRC will permit larger areas if it’s required for ‘reasonable enjoyment’ of the property.
If you have more than one residence, you can elect one within 2 years.
As a couple, you can claim only one Private Residence Relief.
No Private Residence Relief is available:
As a non-UK resident if you are not present in your UK home for 90 days in a tax year or vice versa for overseas home.
Deemed Occupation for Private Residence Relief
Certain period of absence can be treated as occupation providing both preceded and followed by a period of actual, physical occupation:
- unlimited period due to employment abroad.
2. up to 4 years due to working elsewhere
3. up to 3 years for any reason.
4. Delay in taking up resident not exceeding 12 months.
Last 18 months of deemed occupation prior to sale was reduced to 9 months from April 2020 providing occupation at some point of ownership.
Letting Relief (LR):
LR is available only when you share occupancy with tenant from 2020.