The annual Capital Gains Tax exemption for 2017/18 is £11,300. If you don’t use it the allowance will be lost and cannot be carried forward. With respect to the ‘bed and breakfasting’ rule which allows investors to sell shares and then buy the same shares back again a short time later to crystallise a gain or a loss remember that a gain or loss does not crystallise for tax purposes if you sell and repurchase the same shares within 30 days.
Capital Gains Tax Rates (CGT)
If your total of taxable gains and income is below £33,500 the rate of Capital Gains Tax (CGT) is 10%. Any excess gains will be taxed at 20%. If Entrepreneurs Relief (ER) applies, the rate on the whole gain is 10%.
Entrepreneurs Relief
Capital Gains Tax is charged at 10% where Entrepreneurs Relief (ER) applies, this is subject to a lifetime limit of gains totalling £10 million. This relief applies to the sale of a business carried on as a sole trader or partnership, or to the sale of shares in an unquoted company. If you personally held assets used by a partnership that you are a partner of or a company that you control it will also apply. To be entitled to Entrepreneurs Relief you would have to meet several conditions during the previous year before the disposal. Please contact us for more details.
Crystallise and Use Capital Losses
Capital losses must be offset against capital gains in the same year. Unused losses are carried forward indefinitely and can then be offset against future gains. Formal claims should be made to HMRC within four years of the end of the tax year of the loss, otherwise it will not qualify.
You can make a ‘negligible value claim’ that will enable you to crystallise a capital loss if an asset is worth nothing or has limited value. In some cases this claim maybe back dated up to two tax years so you can offset any gains made in earlier years.
Investment Property
The 10% and 20% rates will apply to any gains on commercial property, but property gains on residential properties are taxed at the higher rates of 18% and 28%.
Assets passed between separated spouses
Assets can pass between separated spouses in the year you permanently separate but transfers that happen after this date will require you to pay capital gains tax. If you have split up permanently from your spouse in the 2017/18 tax year you will need to act before 5th April 2018.
Ownership of two homes
Remember that the gain on your principal private residence is exempt from capital gains tax but if you own two properties any gain on the other will be chargeable. If you have more than one private residence, your ‘main’ residence is normally the one you spend more time in. However, you are able to nominate your main residence. To do this you must write to HMRC with nomination details within twenty four months of any change in residence occurring.
James Murray, Practice Manager Visionary Accountants St Albans said: ‘It makes sense to use your annual capital gains tax exemption where you can as you lose it otherwise. With respect to ‘bed and breakfasting’ it is worth remembering that a married couple could arrange for one partner to sell shares after their spouse has transferred some lossmaking shares to them to lower the overall gain. If you have a buy-to-let portfolio it is worth contacting us for tax advice. If you have lived in a rental property that you are selling there maybe the opportunity to claim a partial principal private residence exemption and an additional letting exemption to reduce the capital gains tax you will have to pay.’
James Murray, Practice Manager, Visionary Accountants, St Albans continued: ‘If you think any of these Capital Gains Tax situations apply to you please contact us and we can review your CGT situation as part of an overall tax planning review. At Visionary Accountants we offer a free initial tax planning consultation. Please call us on 01727 730550.’