Self-employed business owners and individuals who choose to dispose of any ‘appreciating assets’ – such as commercial premises or a buy-to-let property – need to be aware of Capital Gains Tax (CGT) and how it might affect the ‘disposal’ of such assets.
CGT is a tax paid on the gain made when an asset is sold, gifted or ‘disposed of’ – and anything deemed a ‘chargeable asset’ can potentially incur a hefty tax bill if specialist advice is not sought in advance.
Typically, an individual will incur CGT when disposing of:
- Any property that is not their main residence.
- Shares that are not considered to be an ISA or PEP.
- Most personal possessions worth £6,000 or more (but not motor vehicles or assets with a lifespan of fewer than 50 years).
- Private residence relief
It is worth noting that, in most cases, individuals will not incur CGT when disposing of their main residential property, due to a tax allowance known as private residence relief.
However, if they have previously let out the property or used it for business purposes, it may still be liable for CGT. The same applies if the property is very large and you decide to sell off part of your land or garden. Any land totalling more than 5,000 square metres (one acre) which is sold off separately will fall foul of the private residence relief rules. If the garden is sold with the main house this does not apply.
- Business assets
The sale of business assets may be subject to Capital Gains Tax on disposal. Such assets may include:
- Land and buildings.
- Plant and machinery.
- Fixtures and fittings.
- Registered trademarks
However, there are various reliefs available and the timings can help to mitigate tax, which is why it is important to seek tax advice before making such disposals.
- Tax-free allowances and reliefs
Individuals should note that they will usually only need to pay CGT on gains above their Annual Exempt Amount or tax-free allowance for the year. Currently, this is set at £11,700 – or £5,850 for trusts.
Similarly, business owners should be aware that they will not need to pay any tax on assets that are ‘gifted’ to a wife, husband or a civil partner.
In addition to this, self-employed business owners can benefit from Entrepreneur’s Relief – a tax relief which enables sole traders, business partners or those who hold shares in a ‘personal company’ to pay just 10 per cent CGT on qualifying disposals if they sell all or part of their business. Again strict rules apply, so expert tax advice is crucial to determine which tax reliefs are applicable.