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Date of publication: November 2018

Capital Gains Tax

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

Current Capital Gains Tax rates are:

  • 18% and 28% tax rates on residential property and 10% and 20% on other assets 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% on residential property and 20% for other assets 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

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.

From 06 April 2019 shareholders who no longer hold a 5% interest due to a reduction caused by a share issue for the purposes of raising capital will still be entitled to Entrepreneurs’ Relief. This protection works as follows:

  • Individuals may elect to crystallise the gain immediately before the dilution.
  • They will be treated as selling and reacquiring the shares at the market value.
  • This election is only available to individuals who qualify for Entrepreneurs’ Relief.
  • It is possible to defer the gain until a future actual disposal. This preserves the Entrepreneurs’ Relief on the gain.

Interaction with EMI Share Issues

Special rules apply to shares acquired through EMI plans.

To be eligible you must have:

  • bought the shares after 5 April 2013,
  • been given the option to buy them at least one year before selling them,
  • been an employee of the company or a company in the same trading group throughout the one year period ending with the disposal.

EMI share options remain eligible for Capital Gains Tax following a reorganisation provided either of the following hold:

  • the reorganisation of the shares is for a single company and the options are replaced by equivalents; or
  • the EMI shares are exchanged for shares in another company and the conditions needed for EMI replacement option rules apply.

Other types of reorganisation will not preserve eligibility but an election may be made to disapply the “no disposal” treatment and so trigger a chargeable gain.
EMI options and company reorganisations are complex matters and you should always seek professional advice before implementing them.

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.

TAX 4

Disclaimer: This note does not contain a full statement of the law and it does not constitute legal advice.  Please contact us if you have any questions about the information set out above.

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