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Capital Gains Tax

For gains on or before 22 June 2010, Capital Gains Tax is charged at a flat rate of 18 per cent.

Capital Gains Tax rates are:

  • 18 % and 28 % tax rates for individuals (the tax rate you use depends on the total amount of your taxable income, so you need to work this out first )
  • 28 % for trustees or for personal representatives of someone who has died
  • 10 % if you qualify for Entrepreneur’s Relief

Entrepreneur’s Relief

Entrepreneurs' Relief allows individuals and some trustees to claim relief on qualifying gains made on the disposal of any of the following:

  • all or part of a business – capable of operating as a going concern
  • the assets of a business within 3 years of it stopping trading
  • shares in a company

The relief applies for the years 2008-09 onwards. There is a maximum lifetime limit of Entrepreneurs' Relief you can claim.

What is the relief?

The relief effectively reduces the rate of tax to 10% for gains up to a lifetime maximum.

The maximum lifetime limit

There's a maximum lifetime limit on the amount of Entrepreneurs' Relief you can claim on qualifying gains. The limit is:

  • the first £1 million from 6 April 2008 to 5 April 2010
  • the first £2 million from 6 April 2010 to 22 June 2010
  • the first £5 million from 23 June 2010
  • the first £10 million from 6 April 2011

Relief to be claimed:

An actual claim must be made for the relief within 22 months from the end of the tax year in which the disposal occurred.

A husband and wife may both claim so long as they both satisfy the eligibility criteria.

Conditions for individuals’ eligibility:

To be eligible for the relief an individual must be:

  • a sole trader or partner in a trading business; or
  • a shareholder owning at least 5% of the shares and 5% of the voting rights in a trading company or trading group; and
  • an officer or employee of that trading company or group; or
  • a trustee of a settlement whose beneficiary is one of the above

Special rules apply to shares acquired through EMI plans.

These conditions must be met for a period of one year prior to the date of the disposal, or to the cessation of trading if appropriate.

Other considerations:

If you dispose of shares, in a share for share exchange, capital gains tax is normally deferred on the disposal of the original shares until the disposal of the replacement shares. If you exchange shares that qualify for entrepreneurs’ relief for shares that do not qualify then you will lose entitlement to the relief. You may therefore prefer to dis-apply the provisions relating to exchange of shares and pay the capital gains tax on the disposal of the original qualifying shares straight away in order to benefit from the relief.

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