Capital gains tax: reliefs and timing

It’s important to make the most of the various capital gains tax (CGT) reliefs available.

Property

Principal private residence relief (PRR) exempts one home from CGT provided it is used as your main residence. There are various planning possibilities should you own additional properties. If you live in two (or more) properties, then an election can be made as to which one is treated as your main residence. If PRR is available, then the final 18 months of ownership are always exempt.

The decision of which property to elect as your main residence will depend on the amounts of potential gain, lengths of ownership and disposal plans. However, you only have two years after acquiring an additional residence to make the election. If a let property qualifies at some point for PRR, then a further letting relief (of up to £40,000) is available. It might therefore be worthwhile moving into a let property before its disposal.

Disposal of a business

A disposal of a business qualifying for entrepreneurs’ relief benefits from a 10% tax rate.

There is a general one-year qualifying condition, so it might be worth delaying a disposal if not currently met. However, where a sole trade of partnership is being disposed of, it is only the business itself which must be run for one year. Although the whole business need not be disposed of, it is necessary to dispose of a clearly identifiable part. If a shareholding is disposed of, the company must be a trading company for the preceding year. If this test is not met because surplus funds have been invested in property or other investments, it might be possible to rectify the situation before disposal.

Replacing business assets

Gains on the disposal of certain business assets can be deferred (rolled over) if new qualifying assets are bought. This must be done during the four-year period running from one year before the disposal to three years after. The most common qualifying assets are land and buildings, fixed plant and machinery and goodwill (disposals by individuals only). So plan carefully – it might be worthwhile bringing forward a disposal to match an acquisition within the previous year if no more purchases are planned.

Be warned that CGT is far more complicated than this basic outline, so please contact us for more detailed advice.

In this edition

This newsletter is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this publication. The newsletter represents our understanding of law and HM Revenue & Customs practice as at 4 October 2016.