There are numerous capital gains tax (CGT) reliefs available when selling business assets.
There is an abundance of capital gains tax (CGT) reliefs available for the disposal of business assets, the most common of which are set out below:
Entrepreneurs’ Tax Relief
If you dispose of all or part of a business, the assets of a business after it has stopped trading, or shares in a personal trading company, then Entrepreneurs’ Relief may reduce the rate of CGT payable on the gain to 10% for up to a lifetime limit of £10 million of gains. This relief is not available for companies.
Business Asset Rollover Relief
Gains arising on business assets can be “rolled over” by reinvesting the proceeds of the disposal into new business assets. These must be purchased within 12 months before or 3 years after the disposal creating the gain, but any of the proceeds that are not reinvested are immediately chargeable to CGT, up to the amount of the gain. The gain rolled over is deducted from the allowable cost so that it increases the eventual gain when the new asset is sold, thus the CGT charge is postponed until the new asset is sold.
Where the proceeds are invested in a depreciating asset (less than 60 years expected life or fixed plant or machinery), the maximum time the gain can be postponed is 10 years.
Incorporation Tax Relief
When you incorporate a business, you generally transfer the assets of the trade to the business, which would be charged to CGT as if it were a market value disposal, under the connected party rules. Incorporation relief rolls over these gains, where the assets are exchanged wholly for shares in the company. The gain is then charged to tax at the point that the shares are sold. Where a mixture of cash and shares are received for the assets, only the proportion of the gain relating to the value of shares received is rolled over.
Disincorporation Tax Relief
This allows a company to transfer certain assets to shareholders who continue the business in an unincorporated form, without the company being charged on the gain arising. Transfers of assets between a company and its shareholders are normally transfers between connected persons, which are usually taxed on the market value of the asset regardless of the amount paid. A claim to Disincorporation Relief allows qualifying assets to be transferred below market value so that no Corporation Tax charge arises to the company, effectively rolling over the gain into the assets transferred. The shareholders therefore suffer increased CGT when they eventually dispose of the assets transferred.
Gift Tax Relief
If you give away business assets, certain shares in unlisted companies, or sell them for less than they are worth, you can make a joint claim to hold over any gains arising until the recipient sells the assets.
Special rules apply to certain chattels: you should not have to pay CGT on cars, ‘wasting assets’, which are assets with a limited lifespan that often lose their value over time (e.g. racehorses) or assets that are worth £6,000 or less at the time you sell or otherwise dispose of them. Even if the proceeds are more than £6,000 the chargeable gain is limited to 5/3 of the proceeds over £6,000, and for jointly owned assets each owner’s share of the possession when it’s sold or disposed of is compared with each person’s limit of £6,000.
Specialist Business Asset Tax Advice
If you would like more information regarding the capital gains tax reliefs that are available for business assets, please contact Tax Innovations on 01962 856 990 or firstname.lastname@example.org.