Business Taxation - Capital Gains Tax (6)

Question 1

What is CGT?

Answer 1

Capital Gains Tax: Capital Gains Tax (CGT) is a tax levied on individuals, and must be paid according to the law. See CGT Calculation to see how it is calculated.

Question 2

Which parties are liable to pay CGT?

Answer 2

Liable Parties: CGT is levied on the profits individuals make on the sale of capital assets, such as land.

(1) Sole Traders: Sole traders will pay CGT on disposed assets.

(2) Partners: CGT is apportioned between partners proportionate to their ownership of a disposed partnership asset. This is equal by default, but may be altered in a bespoke agreement.
Reliefs: Reliefs can be sought individually, irrespective of other partners.
Partial: Partners may dispose part of their share in an asset, usually collectively to an incoming partner. They still pay CGT on the gain.
LLPs: LLP Partners are generally treated the same. However, on occasion LLPs may be treated like companies for the purposes of capital gains paid on cessation.

Question 3

How is CGT worked out for share buyback?

Answer 3

Share Buyback: Share buyback profits are usually charged to income tax, but may be charged as CGT instead.

(1) Company Requirements: The company must be unlisted (other than AIM) and is either buying back: a) for the purpose of paying IHT; or b) for the benefit of trade (i.e. unfair prejudice petition).

(2) Shareholder Requirements: The shareholder must have owned the shares for at least 5 years, and is either selling: a) all their shares; or b) at least 25% of their shares, but no more than 30% of the company’s share capital.

(3) Advice: HMRC will provide advice if unclear. CGT buyback can be favourable, so it is important to check.

Question 4

How is CGT paid to HMRC?

Answer 4

HMRC Payment: CGT must be paid to HMRC using the correct procedures.

(1) Date of Payment: CGR must be paid by 31 January following the relevant tax year, or 30 days after a CGT assessment if this is later.

(2) Residential Sales: Provisional gains on residential property sales must be submitted and, if required, paid within 30 days of sale (usually exempt for primary residences).

(3) Instalment Payment: Payments may be payable in ten annual instalments. To do so, the disposal must benefit from hold-over relief, and either: a) be a gift; b) give a controlling share in a company; or c) be a shareholding in an unquoted company. The first instalment is due 31 January following the relevant tax year.

Tax Avoidance
Tax Avoidance: HMRC has many powers to adjust liability to counteract abusive tax avoidance arrangements (GAAR).