Capital Gains Tax 2 Business Exemptions

Question 1

What are the reliefs available for CGT for business (not corporations)?

Answer 1

Applies to individuals/partners

1. Business Asset Disposal Relief
   - only pay 10%
   - can use annual exemption first
2. Hold Over (Gift Relief)
   - postpones CGT
   - paid by donee
3. Replacement of Business Assets Relief
   - postpones CGT
   - can’t use annual exemption
4. Incorporation Relief
   - postpones CGT
   - can’t use annual exemption
5. Enterprise Investment Relief
   - postpones CGT
   - can’t use annual exemption

Question 2

What assets can apply to business Asset Disposal Relief?

Answer 2

Available on on gains made by individuals on sale or gift of certain business assets:

1. all or part of a trading business (sole trader or partnership) carried on for at least 2 years before disposal
2. Shares in personal company AND was officer/employee for 2 years before disposal
3. Assets owned by person but used by personal trading company or partnership for 2 years before disposal

Question 3

What relief does business asset disposal relief grant?

Answer 3

Capital gain will be taxed at 10%
- annual exemption deducted first
- rest is taxed at 10%

Limit
- use of relief subject to lifetime cap of £1m worth of assets

Question 4

How does hold over (gift) relief work?

Answer 4

Can be agreed by both parties for qualifying assets:
- defers the donors CGT
- means that donee will pay capital gains from the donors original acquisition cost

Calculation
(Asset Value when donee sells) minus (Asset Value when donor acquired)

Question 5

What assets does hold over relief apply to?

Answer 5

1. assets owned by transferor but used by a personal company / for transferros trade or profession
2. shares in any unquoted trading company (shares not listed)
3. shares in transferors personal company
4. agricultural land or property that is used for agriculture (dont need to use it yourself)

Question 6

How does replacement of business asset relief work? (roll over relief)

Answer 6

Applies to:
- Sole Trader and Partners

Can defer CGT:
- on disposal of qualifying assets (land, buildings, plant and machinery)
- if proceeds are reinvested in other qualifying assets
- either 1 year before disposal; or
- 3 years after disposal

Important
- any PROCEEDS not reinvested are treated and taxed as capital gain

Effect
- subtract first gain from price of asset reinvented in
- has effect of the paying more CGT when selling new asset

Question 7

how does incorporation relief work for capital gains?

Answer 7

Person transfers their business or partnership interest to company
- gain on transfer (assets) deferred
- by subtracting gain from cost of company shares
- more CGT payable when they sell shares

Rules
- all assets must be transferred (not money) or no relief at all
- relief only applies where consideration is in shares // if proportion is not given in shares must pay tax on this

Question 8

What is enterprise investment scheme reinvestment relief?

Answer 8

Defer payment of CGT on any chargeable gain by investing in shares in qualifying unquoted trading companies either:
- 1 year prior to gain being made; or
- within 3 years of gain being made

Question 9

For incorporation relief what happens if half of the consideration is in shares and the other half in cash?

Answer 9

Half in Shares
- rolls over

Half in Cash/other asset
- treated as capital gain and taxed

Question 10

For replacement of business asset relief what happens if CG is £200k, the sale proceeds are £400k and the new purchase is £300k?

Answer 10

Not all proceeds where reinvested
- £400k - £300k = £100k

Capital Gains Tax Charged on the £100k

Question 11

CGT Personal Company meaning

Answer 11

Must have 5% of shares AND voting rights

Question 12

CGT meaning of trading company?

Answer 12

Basically cannot be a company that just makes/holds investments