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FEATURED: It’s good news for Capital Gains Tax

michael-monthly-tax-updateLatest tax planning news and tips

This month Michael Lansdell, from Lansdell & Rose Chartered Accountants, talks about the latest developments for Capital Gains Tax following the Budget in March, and how this will, mainly, have a positive effect for investors.

 


The views expressed in this article are specifically those of Lansdell & Rose Accountants.


capital-gains-tax-updateCapital Gains Tax – quick reminder

Capital Gains Tax (CGT) is a tax payable on the sale of assets where a financial gain is made.

For doctors and dentists the most common assets, where gains occur, include the sale of property and the sale of shares. CGT applies mainly to businesses so if you own a dental or medical practice and decide one day to sell it, then a CGT calculation is going to play a part in the final transaction.

CGT can also affect your overall personal tax situation though. If you are employed but have a buy-to-let property, you will need to declare any gains for the purpose of Capital Gains Tax on your personal tax return.

CGT is applied to the the profit made on an investment, so broadly the sale proceeds less costs. There are allowances available that need to be factored into the calculation though.

Subsequently, your overall CGT bill can often be significantly reduced if you know how to maximise these reliefs and allowances. An accountant can help you here.


CGT – the rates have dropped for 16/17

cut-in-capital-gains-tax-rateThe higher rate of CGT has been cut for the 16/17 tax year, from 28% to 20%. The basic rate has also dropped from 18% to just 10%.

To use an example, if you make a gain on an investment of £100,000, the CGT will now be over £7,000 less than if you sold it last year.

That’s a good start for investors looking to dispose of assets, and it makes the proposition of investing for capital growth even more attractive than before.

Some doctors and dentists will no doubt look to diversify their investments to take advantage of this cut in CGT, moving away from a focus on just reaping income with the prospect of a greater gain in the longer term.


Buy-to-let CGT rate remains the same

In line with other attempts to slow down buy-to-let property investors, the CGT rate on the sale of buy-to-let property remains at 18% and 28%.

When selling a property that is your principal private residence, i.e. your home, you can claim a Principal Private Residence Relief (PRR), exempting your gain from CGT.

Effectively, these higher rates of CGT now apply to the sale of property that isn’t fully covered by the PRR.


Do you qualify for Entrepreneurs Relief or Investors Relief?

Entrepreneurs Relief (EER) has been around a while. Gains that qualify incur a flat rate of 10% tax, with a £10 million lifetime limit. In order to quality, you must be an employee or an officer to the company and hold a minimum 5% shareholding.

The EER has been extended for external investors, and now available is a new Investors Relief, which is more complex. Gains also incur a 10% tax rate, and, this relief has it’s own £10 million lifetime limit to utilise alongside the EER. In order to qualify, you must not be an employee or an officer to the company.

For this new investors’ relief, the shares must be:

  • Newly issued, and acquired by subscription for new consideration wholly in cash
  • The issue and subscription must be for genuine commercial reasons
  • In an unlisted trading company or, an unlisted holding company of a trading group
  • Issued on or after 17 March 2016
  • Held for a continuous period of three years starting on or after 6 April 2016

CGT advice for doctors and dentists

Right now, the Investors Relief doesn’t directly benefit existing shareholders, due to the issue date of 17 March 2016.

However, by adding future shareholdings and making a future partial disposal, the shares that qualify for Investors Relief will be disposed of in priority to non-qualifiing shares.

To use an example, if you hold 10,000 shares from prior to 17 March 2016, and subscribe for 10,000 more shares that quality for Investors Relief following this date, should you sell 10,000 shares, after the three-year period for qualifying, the tax calculation will favour the qualifying shares and the 10% tax rate can be applied.

Some clients have asked me if they can transfer shares to a spouse or civil partner to make use of the new Investors Relief. The answer is unfortunately “no”, as the date of the shares will be treated as if they had subscribed for and acquired the shares on the original date.

Still, all together there are plenty of new opportunities arising for CGT planning.

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Read more from Michael 


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