What is Capital Gains Tax?
If you are thinking of becoming self employed you may need to pay capital gains tax. Liability for capital gains tax applies to the sale of assets such machinery, vehicles, property, equipment and shares.
Since 22 June 2010 the standard rates for capital gains tax are 18% or 28%, depending on the amount of your other taxable income. This tax still applies even if you give an asset away. So if you give away something that is worth £50,000 that you only paid £20,000 for, that is still classed as a gain of £30,000.
What don’t I pay the tax on?
– The tax is not payable on personal belongings worth less than £6000.
– You will not normally be liable for capital gains on gifts to your spouse or civil partner.
– It is also very unlikely that you will pay capital gains on the sale of your home. The property must be your main residence and not rented out or used as business premises. If you meet this criteria then you do not have to claim the Private Residence Relief, you get it automatically.
– If you own more than one property then you must nominate one as your main residence. You have two years from the date you obtain the second property or become self-employed to contact HMRC and notify them of a second address.
How can I reduce capital gains tax?
There are several reliefs that you may qualify for when selling assets which will reduce the amount of capital gains tax payable to HMRC.
Business Asset Roll-Over Relief – This is designed so that you can roll-over or postpone the payment of capital gains tax when re-investing any profits back in the business. This may be the case if you sell machinery but have to replace it, or if you sell business premises to purchase bigger premises. There are other regulations regarding partial re-investment that you should ask your accountant about if you think this relief may apply to you.
Gift Relief – This relief is designed for assets that may transfer ownership but are still able to be used whilst trading. This could then be applied to circumstances such as gifting your business premises to your children. Capital gains could still be due when the asset is disposed of at a later date, they will have to include the gain from when the asset was gifted in their calculations.
Incorporation Relief – This relief is designed for when you are changing from being a sole trader or partnership to a Limited company. To qualify for this relief all business assets must be transferred into the company, you will then get shares in the company in exchange for the assets.
Entrepreneurs’ Relief – This relief is designed to help people who are disposing of all or part of a business, selling the assets after trading has ceased or selling shares in a company. If you qualify you will pay a reduced rate of 10%. This relief does come with lifetime limits (currently £5 million). You can claim it as many times as you need, as long as the accumulative amount is no greater than the prevailing limit.
Capital gains tax has lots of different regulations and criteria that must be met in order to fully utilise the reliefs available; Taxaccolega, a low fixed fee accountant, can offer advice regarding capital gains tax so call us today on 08000 235 234 or email firstname.lastname@example.org