Make sure you are aware of the pitfalls of Capital Gains Tax

What happens if my clients have a Capital Gain?

We are raising awareness of the UK’s complex Capital Gains Tax (CGT) regime, amid concerns given the potentially high costs of failing to plan for its effect on disposals.

In the UK, the disposal of an ‘appreciating asset’ – which could range from commercial premises or a buy-to-let property to valuable jewellery – will often incur CGT.

When disposing of a taxable asset, individuals can potentially incur a hefty tax bill if they do not tread carefully, the firm has warned.

Simon Nuttall, a Partner at McGills Chartered Accountants, said that individuals ought to be aware of the rules surrounding private residence relief – which are not quite as simple as they first appear.

“Under the rules of private residence relief, individuals will not incur CGT on the disposal of their main residential property. However, if a property has previously been let out or used for business purposes, it could still be liable for CGT,” he said.

“The same applies on the disposal of any unusually large properties – as homes (including grounds) of more than 5,000 square metres may not be entitled to full private residence relief.”

Simon added that businesses also needed to be careful when disposing of any business assets such as land and buildings, plant and machinery, shares, fixtures and fittings, registered trade marks and goodwill.

“It is important to seek specialist tax advice in order to determine whether a disposal will be liable to CGT – and if a CGT liability can be mitigated in any way,” he said.

“Individuals will only be required to pay CGT on gains above their Annual Exempt Allowance of £11,700, while sole traders and other business owners might be able to benefit from Entrepreneur’s Relief – which enables CGT to be reduced to a rate of just ten per cent.”