Capital Gains Tax changes

Capital gains tax rates 

Key points:

  •  Capital Gains Tax (CGT) rates cut for disposals of ‘most’ assets.
  •  Disposals of residential property will remain chargeable at existing rates resulting in added complexity to the Tax system.

Tax simplification at its best, from 6th April 2016 we will have four rates of Capital Gains Tax to get to grips with!

  • The existing 10% rate continues to apply when Entrepreneurs’ relief applies.
  • A 10% rate when gains on assets (other than residential property) fall with your basic rate tax band.
  • An 18% rate for gains on residential property that fall within your basic rate band.
  • A 20% rate for gains on assets (other than residential property) that fall into your higher rate tax band.
  • The 20% rate also applies for Trustees and Personal representatives. 
  • Finally a 28% rate for gains on residential properties that fall in your higher rate band.
  • And the 28% rate continues to apply if you are subject to the ATED-related chargeable gains rules.

For disposals of assets other than residential property this means the Capital Gains Tax bill will be reduced if the disposal is deferred until after 5th April 2016. 

For disposals of residential property the rules are unchanged; main residences will continue to be exempt and other residential properties will continue to be chargeable at 18% or 28%.

 

Entrepreneurs’ Relief

Key points:

  •   Extension to disposals eligible for Entrepreneurs’ relief.
  •   Anti– avoidance rules previously announced have been amended to ensure they do not apply to genuine commercial arrangements..

Investors in unlisted trading Companies will now be able to claim Entrepreneurs’ relief ensuring any gains they make will only be taxed at 10%.

The eligible shares must be newly issued subscription shares for new consideration; they will be held by individuals and have been acquired on or after 17th March 2016.  They will need to have been held for at least three continuous years to qualify for the new ‘investors’ relief’. 

There will be a lifetime cap of £10million for eligible gains. 

This is an extension of Entrepreneurs’ relief to promote investment in unlisted trading companies over the long term.

 

Anti-avoidance 

Finance Act 2015 introduced new rules to combat the abuse of Entrepreneurs’ relief.  These new rules resulted in relief not being available in a number of circumstances which we felt were genuine commercial arrangements.  These issues have now been addressed and the corrections which provide clarity have been backdated to when they were introduced.

We welcome this outcome as we can now provide clear advice as to when Entrepreneurs’ relief will be available.

 

Employee shareholders status CGT changes

Key points:

  •   A lifetime limit of £100,000 has been introduced on CGT exempt gains that a person can make on the disposal of shares acquired under Employee Shareholder Agreements. Previously the exemption was unlimited in certain circumstances.

Employer Shareholder Agreements were introduced in 2013 with tax advantages for individuals giving up employment rights in return for receiving shares in their employing company.  Any gain from selling the shares was exempt from capital gains tax (CGT) if the total value of an individual’s shares was £50,000 or less when they acquire them.

Where shares are acquired under an Employee Shareholder Agreement entered into after 16 March 2016, individuals who make more than £100,000 of gains on their Employee Shareholder shares will be charged to CGT on gains made above that threshold.  The £100,000 exemption is a lifetime limit.

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