Capital Gains Tax

Changes to Capital Gains Tax Rates

With effect from 6 April 2016 the current main capital gains tax rates of 18% and 28% will be reduced to 10% and 20% respectively, subject to exclusions for chargeable gains on disposals of residential property that do not qualify for private residence relief and receipt of carried interest, both of which will continue to be taxed at either 18% or 28% as appropriate. In addition, ATED-related gains will remain taxable at 28%, and the entrepreneurs’ relief rate of 10% and the company NRCGT rate of 20% will continue to apply.

Entrepreneurs’ Relief: Extension to Long-term Investors

Entrepreneurs’ relief at 10% will be extended to gains accruing on the disposal of ordinary shares in an unlisted trading company which:

  • are held by individuals (excluding employees and officers of the company);
  • are newly issued to the claimant and acquired for new consideration on or after 17 March 2016; and
  • have been held for a period of at least three years starting from 6 April 2016.

The individual’s qualifying gains for this relief will be subject to a lifetime cap of £10m. This limit will apply to beneficiaries of trusts.

Entrepreneurs’ Relief on Associated Disposals

Finance Bill 2016 will introduce measures backdated to 18 March 2015 which will allow entrepreneurs’ relief to be claimed on an associated disposal of a privately-held asset when the accompanying disposal of business assets is to a family member. In addition, the requirement that the material disposal of business assets is of 5% or more of the claimant’s share in a partnership or holding in a company will not apply where the claimant disposes of the whole of his interest and has previously held a larger stake.

Entrepreneurs’ Relief: Joint Ventures and Partnerships

Changes to the definitions of a ‘trading company’ and a ‘trading group’ applying for entrepreneurs’ relief purposes will be included in Finance Bill 2016 and backdated to 18 March 2015. Where the new definitions apply, a proportion of the activities of the joint venture company corresponding to the investing company’s fractional shareholding in it will be treated as carried on by the investing company.

Similarly, trading activities of a company in its capacity as a partner in a firm will be taken into account in deciding whether the company is a trading company.

Employee Shareholder Status: Lifetime Capital Gains Tax Limit

A lifetime limit of £100,000 will be imposed on the exempt capital gains that a person can make on the disposal of shares acquired under Employee Shareholder Agreements entered into after 16 March 2016.

Any past or future gains on shares that were issued in respect of agreements made before midnight at the end of 16 March 2016 will not count towards the limit.

The transfer of shares between spouses or civil partners will be treated as being for consideration which gives rise to a gain equal to the transferor’s unused lifetime limit, subject to the overriding condition that the consideration does not exceed the market value of the shares transferred.

Entrepreneurs’ Relief: Goodwill on Incorporation

Legislation in Finance Bill 2016 will allow entrepreneurs’ relief to be claimed, subject to certain conditions, on gains on the goodwill of a business. The relief can be claimed when the business is transferred to a company controlled by 5 or fewer persons or by its directors and the claimant holds less than 5% of the shares, and less than 5% of the voting power, in the acquiring company. These changes will take effect for disposals made on or after 3 December 2014. Relief will also be due where the claimant holds 5% or more of the shares or voting power if the transfer of the business to the company is part of arrangements for the company to be sold to a new, independent owner.

Non-UK Residents Disposing of UK Residential Property

Legislation will be included in Finance Bill 2016 to amend the rules for disposals of UK residential property by non-residents to remove, with retrospective effect from 6 April 2015, a double charge that can occur in certain circumstances and to correct an omission with effect from 25 November 2015. The Government will also prescribe specific circumstances where a return is not required. CGT will be added to the list of taxes that may be collected on a provisional basis.