Capital Gains Tax

Potts & Co - Accountancy & Business Advice

Retain Your Entrepreneurs’ Relief

By | Capital Gains Tax, HMRC, Potts & Co Accountancy & Business Advice News

Entrepreneurs’ relief allows you to pay capital gains tax at ten percent on gains made on the disposal of shares issued by your personal company, or assets used by that company.

The company must qualify as your personal company for a full 12 months ending on the earlier of the disposal date and the date it ceases to trade. This period will double to 24 months for disposals made after 5 April 2019, so bear this in mind if you are planning to sell next year.

For the company to qualify as your personal company you must hold at least five percent of the ordinary share capital and at least five percent of the voting rights, plus have a right to five percent or more of the net assets of the company and at least five percent of its distributable profits. These rights are normally attached to full ordinary shares, but they might not to apply to holders of preference shares or shares with other restricted rights.

You need to keep an eye on new share issues as they can dilute your own shareholding. If new shares are issued to investors after 5 April 2019 which dilute your holding to below five percent, your right to claim entrepreneurs’ relief on a future disposal will disappear. However, you can make an election to cash-in your entrepreneurs’ relief at that time to avoid losing it.

Do not forget to tell us if your company is issuing more shares or converting debt into shares, as there is a time limit for making the relevant elections.

Potts & Co - Accountancy & Business Advice

Gains From Off-Plan Purchases

By | Capital Gains Tax, Potts & Co Accountancy & Business Advice News, Property

Most people understand that when you sell your main home the profit you make on the sale is exempt from tax. However, for this exemption to apply in full you must generally occupy the residence throughout your period of ownership.

If the property has been acquired before it is fully constructed, the ownership condition will be met for the period before it is inhabited but the occupation condition will not.

This has implications for properties which are purchased ‘off-plan’. For capital gains tax purposes the ownership period begins on the day contracts for purchase are agreed and exchanged, not on the day the contract is completed. For an off-plan purchase the contracts may be exchanged many months or years before the property is finished and ready to inhabit.

As HMRC assumes the gain on the sale of the property accrues equally over the period it is owned, a large part of the gain is allocated to the period before the owner can move in.

If this applies to you, we should review your purchase contracts before you sell the property. If the contract contained conditions which effectively included break points in the agreement to purchase, the ownership period may be calculated from a later date, which will reduce your taxable gain.

Potts & Co Accountancy

Tax Exemption For Homes Clipped

By | Budget Update, Capital Gains Tax, HMRC, Potts & Co Accountancy & Business Advice News, Property

When you sell your only or main home, you expect any gain you make to be free of CGT. But that CGT exemption only applies if you have occupied the property as your main home for the entire period of your ownership.

If you move out of your home before it is sold, the gain accruing for the final period when you were not living there would be subject to CGT. However, the tax rules allow up to 18 months of the final ownership period to be CGT exempt even if you were not living in the property.

HMRC is proposing to cut this final exempt period to nine months for properties sold from 6 April 2020. If the owner, or their spouse, is disabled or has moved into a residential care home, the final exempt period is extended to 36 months.

If you let out a property which had been your main home at some point, you can claim Letting Relief to reduce the taxable capital gain by up to £40,000. Letting relief is capped at the amount of relief due for the time (usually a different period) in which you occupied the property as your main home.

HMRC wants to restrict letting relief to cover only periods in which the owner occupied the property while part of it was let. Homeowners who move and then let out their former home will be hit by this change in CGT relief, which is due to take effect for properties sold on or after 6 April 2020.