Capital Gains Tax (CGT)

Do you sometimes have to pay CGT? Or do you own assets which might give rise to a capital gain when sold? If so then read on for important information about the CGT system.

Making the most of your investments requires some understanding that CGT arises on the sale of most assets and, subject to various reliefs and exemptions, is payable on the difference between the sale proceeds and the original cost. The CGT annual exemption results in the first £3,000 of gains, for 2024/25, being tax free.

In general CGT is payable at 18% where total taxable gains and income, after taking into account all allowable deductions are within the income tax basic rate band. CGT is payable at 24% on gains, or any parts of gains, above this amount. These rates also apply for chargeable gains on residential property that do not qualify for private residence relief.

Some assets are exempt from CGT such as motor cars (including classic cars), personal goods such as jewellery or antiques sold for less than £6,000, UK government bonds and, crucially, your only or main home.

Where a gain is chargeable, there are a number of reliefs which could be considered mainly in relation to business assets. Such reliefs are mainly used to defer tax until a later date rather than reduce the gain permanently. Business Asset Disposal and Investors’ Reliefs are the exceptions.

Business Asset Disposal Relief

Business Asset Disposal Relief (BADR) which was formerly known as Entrepreneurs’ Relief may be available on the first £1 million gains from the disposal of certain businesses during an individual’s lifetime. Qualifying gains are taxed at a 10% rate of tax. Qualifying business disposals include:

• qualifying shareholdings (see the 5% rules below for more details)
• the whole or part of an unincorporated business
• the disposal of assets on cessation of a business.

For disposals on or after 6 April 2019, there needs to be a qualifying period of ownership of two years up to the date of disposal.

Where an individual makes a qualifying business disposal, relief may also be available on an ‘associated disposal’. An ‘associated disposal’ is a disposal of an asset which is: used in a qualifying company of the individual; or used in a partnership, where the individual is a partner. 

The 5% rules for company shareholders

To qualify for BADR, the company needs to be an individual’s personal company where the individual must:

• be a company employee or office holder
• hold at least 5% of the company’s ordinary share capital and
• be able to exercise at least 5% of the voting rights.

An individual must also satisfy either:

• the distribution tests which require them to be entitled to at least 5% of the company’s profits available for distribution and 5% of the assets available for distribution in a winding up; or
• a proceeds test which requires them, in the event of disposal of the whole of the share capital of the company, to be beneficially entitled to at least 5% of the proceeds.

Please contact us for specific advice.

Investors’ Relief

A 10% CGT rate applies to external investors (ie not employees or officers of the company) in unlisted trading companies. To qualify for investors’ relief the following conditions apply:

• shares must be newly issued and subscribed for by the individual for new consideration
• be in an unlisted trading company, or an unlisted holding company of a trading group
• have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016
• have been held continuously for a period of three years before the disposal.

An individual’s qualifying gains for investors’ relief will be subject to a cap of £10 million in their lifetime.