CGT

Question 1

What are the principal CGT reliefs and exemptions?

Answer 1

-Business asset disposal relief - BADR (previously entrepreneurs’ relief)
-annual exemption - AE
-hold-over relief
-roll-over relief on replacement of business assets - ROR
-investors relief
-roll-over relief on incorporation of a business
-transfer between spouses
-buyback of shares

Question 2

When does BADR apply?

Answer 2

BADR applies where there is a qualifying business disposal (QBD).

A QBD includes 3 types of transaction:

1. The sale or gift of the whole/part of a business carried on as a sole trader or in partnership (i.e. an unincorporated business). The business must have been owned for at least 2 years prior to the disposal.
2. The sale or gift of shares in a company provided that:
   -the company is a trading company
   -the shareholding represents at least 5% of the company’s ordinary going shares with the right to at least 5% of the profits/assets or sale proceeds of the company
   -the individual is an employee or officer of the company
   -these conditions have been satisfied for at least 2 years prior to the disposal
3. The sale or gift of assets used by trading company/partnership business, but owned individually by the partner or shareholder. Such disposals qualify if they are associated with another qualifying disposal and involve reducing their share in the company by at least 5%. The assets must have been owned for at least 3 years and used by the business throughout the previous 2 years.

Question 3

What is the tax rate for business qualifying gains?

Answer 3

For qualifying gains, an allowable lifetime limit of £1 million is taxed at the flat rate of 10%.

Question 4

What is the annual exemption?

Answer 4

Each individual has an AE for CGT purposes. The AE is the amount of capital gain that an individual can make each year without being subject to CGt.

£6,000 for 2023/24

Question 5

What is hold-over relief?

Answer 5

The effect of hold-over relief is to postpone the potential payment of CGT until the eventual disposal of the transferee of the business asset concerned.

HOR is available to an individual who disposes of a business asset by way of a gift (or at an undervalue) provided both parties elect for it to apply.

The transferee agrees to take on the transferor’s tax liability.

Question 6

What is roll-over relief?

Answer 6

ROR postpones the potential payment of CGT until the replacement asset is sold.

ROR is available if a QBA is sold and the proceeds of sale are then used to buy another QBA, usually within one year before or three years after the sale of the original asset.

Company shares are NOT QBAs for the purposes of ROR.

Question 7

What is investors’ relief?

Answer 7

IR can be used for gains made on the disposal of qualifying shares in unlisted trading companies.

Shares must be fully paid ordinary shares that were issued to the investor in return for cash on/after 17 March 2016.

Shares must have been held by the investor for at least 3 years from 6 April 2016.

A special rate of 10% CGT applies to the gain, subject to a lifetime cap of 10 million.

Question 8

What is roll-over relief on incorporation of a business (RORIB)?

Answer 8

Applies in order to postpone the potential payment of CGT when an unincorporated business is incorporated. Rationale is to encourage businesses to expand.

Question 9

What is the spouse exemption?

Answer 9

Transfers between spouses are deemed to be made with no gain/loss. However, any liability to tax is deferred until the eventual disposal of the item.