Techzone

Annual exemption

Individuals have an annual capital gains tax exemption of £3,000 (£6,000 2023/24).  If the total of all gains and losses in the tax year fall within this exempt amount no tax is payable. Gains in excess of the annual exemption will be taxable.

The exempt amount cannot be carried back or forward. If it's not used, in part or full, the unused amount is lost. It also cannot be transferred.

Trusts may be able to receive a maximum exemption equal to half of the rate available to an individual, currently £1,500 (£3,000 2023/24). But this amount is shared if the settlor has created more than one trust. If more than five trusts have been set up, each trust will receive 1/5th of maximum trust annual exemption.

Companies are not eligible for the annual exemption.

Gifts between spouses

There is typically no CGT payable when property is passed to a spouse or civil partner. Assets pass on a *no loss/no gain basis. This means that the original acquisition cost is used when calculating gains when the recipient spouse disposes of the asset.

Spouses or civil partners must be living together to qualify for the spousal exemption. They will generally be treated as living together unless:

• they're separated under a court order,
• there's a formal deed of separation, or
• circumstances show that separation is likely to be permanent.

The no loss/no gain basis has been extended to couples who are in the process of separating.  The timescale for disposals after 6 April 2023 to benefit from the 'spousal exemption' is 

• up to 3 years from the end of the tax year in which they separate or   
• unlimited time when the assets are subject to a formal divorce agreement or separation order

Prior to 6 April 2023 separating couples had until the end of the tax year in which the separation event took place.

Deferring capital gains

Where gains in excess of the annual exemption have been made, CGT will typically be payable. However, it's possible for the gain to defer or ‘holdover’ the gain in certain situations.

Enterprise Investment Scheme deferral relief (EIS)

Capital gains made on the disposal of any asset can be deferred by investing in Enterprise Investment Scheme (EIS) shares. There's no CGT payable on the disposal of the original asset if shares equal to the amount of the chargeable gain (i.e. the amount in excess of the annual exemption) are purchased in the EIS.

Gains can be deferred if EIS shares are purchased up to three years after the disposal. It's also possible to defer gains if shares in an EIS were purchased one year before the disposal.

The EIS company will issue an EIS3 certificate to certify that they meet the all the necessary requirements. Part 2 of this certificate must be submitted with the client’s tax return to claim deferral relief. The time limit for claiming is five years from 31 January following the end of the tax year in which the shares were issued.

To qualify for deferral relief, the EIS shares must be held for a minimum of three years. The maximum gain that can be deferred is unlimited. It's possible to invest more than the maximum £1M limit for income tax relief and still get CGT deferral relief on the total investment.

The gain is eventually realised when there's a disposal of the EIS shares. There's no CGT payable on any growth in the value of the EIS shares, but the deferred gain will become taxable. The CGT rate will depend on the original  asset sold.  If the capital gain deferred was from a buy-to-let property the gain must still be taxed at 18% or 24% (18% or 28% 2023/24).   A deferred capital gain from a disposal of shares will be taxed at 10% or 20%,  if the disposal was before 30 October 2024. Disposals after 30 October 2024, the gain is taxed at 18% or 24%. It is possible to further defer these gains by investing in further subscriptions of EIS shares.                                               

Gift hold-over relief

When assets are given away, this is normally a disposal for CGT. Hold-over relief allows the gain to be deferred until the new owner disposes of the asset.

The effect of gift hold-over relief is that there's no tax payable at the time of the gift. However, the donee's acquisition cost is reduced by the amount of the held over gain, thus increasing the chargeable gain on a subsequent disposal.

There are two circumstances where hold-over relief may be available:

• the transfer of business assets (including unlisted shares)
• transfers both into and out of relevant property trusts.

Gift of business assets.
Hold-over relief can be claimed on gifts of unlisted shares (including AIM shares). However, the shares must be in a trading company. Shares in investment companies, including those holding buy-to-let properties, generally won't qualify.

Relief is also available if a business owner gives away assets used in the business.

Gifts into relevant property trusts
Relief is available when assets on which there are capital gains are placed into trust and there is a chargeable lifetime transfer (CLT) for inheritance tax, i.e. gifts into discretionary trusts and post 2006 non-qualifying interest in possession trusts. There's no tax payable by the settlor when the asset is added to the trust and the gain will be held over and taxable upon the trustees. The trustee's  rates of CGT are 20% (if disposal was before 30 October 2024) or 24% on residential property (20% or 28% 2023/24), when they dispose of the asset. For disposals after 30 October 2024 Trustees pay CGT at 24% on all assets.

Relief can also be claimed when assets are passed out of the trust. This can be when the trustees exercise the powers to pay to a beneficiary, or where a beneficiary becomes absolutely entitled under the terms of the trust. This may happen, for example, when the beneficiary reaches a specified age or on the death of beneficiary who had a life interest.

Gifts into or out of absolute and settlor interested trusts don't qualify for gift hold-over relief.

Claiming hold-over relief must be done within four years from the end of the tax year in which the disposal was made, using HS295 claim form. Who must claim depends upon the type of gift.

• If the gift is to the trustees of a settlement, only the settlor is required to make the claim
• In all other cases (including trustees appointing assets out of the trust) the claim must be made jointly by the donor and the recipient

Relief on investments

Certain investments are exempt from CGT, although there may be qualifying conditions which need to be satisfied.

• ISAs are always free from any CGT on investment gains made
• Enterprise Investment Scheme (EIS) and Seed Investment Scheme (SEIS) shares are free from CGT, provided the shares are held for a minimum of the three years and income tax relief was given when the shares were purchased and hasn’t been clawed back
• Venture Capital Trust (VCT) shares are free of CGT provided full income tax relief was given on the share purchase. There's no minimum holding period for VCT shares. Only EIS shares allow the opportunity to defer existing capital gains through deferral relief
• Gilts & Qualifying Corporate Bonds held by individuals are exempt from CGT

Relief for disposal of residential property

There's no CGT payable if someone disposes of a property which has been their only or main residence throughout their period of ownership.

Principle Private Residence relief (PPR)

If someone disposes of a property which has been their main residence for part of the period of ownership, Principle Private Residence Relief (PPR) is available to reduce the amount of gain subject to CGT.

The relief works by exempting the period of ownership where the property was their main residence. In addition,  the final months of ownership are always treated as exempt. 

Fom 6 April 2020 the final months exemption has reduced from 18 months to nine months (this period can be extended to 36 months for someone who is disabled or a resident in a care home).

The total gain over the period is then apportioned between periods which are exempt or chargeable. It's not necessary to look at the actual investment growth over each specific period.

Before 6 April 2023, for separating spouses or civil partners, the one that moved out of the family home was  only entitled to PPR relief for 9 months when the home is sold or transferred. For disposals from 6 April 2023, the PPR exemption will be extended until the home is sold. This ensures that the spouse or civil partner who moved out is not being unfairly treated for CGT.

PPR and trustees

PPR relief is also available to trustees provided one or more of the beneficiaries occupy the property.

The beneficiaries of the trust must occupy the property as their only or main residence and must be entitled to occupy the property under the terms of the trust.

Entitlement to occupy under the terms of the trust can be satisfied where:

• the beneficiary has an interest in possession in the property - broadly, this is a right to occupy the property - or
• the trustees of a discretionary trust have used their powers to allow a beneficiary to occupy the property

The trustees must make a claim for the relief from CGT to apply i.e. it's not automatic.

Relief for business owners and business assets

Relief may be available when a business owner sells some or all of their business, or if the business sells assets used in the business and replaces them with other business assets.

Business Asset Disposal (Entrepreneurs) relief

Individuals who are looking to dispose of their business may be entitled to claim Business Asset Disposal Relief (formerly known as Entrepreneurs relief).  This relief is available on the disposal or part disposal of a trading business carried on by an individual either alone or in partnership

The relief is provided by a special rate of CGT of 10%, on disposals up to a cumulative lifetime limit of £1M (previously £10M for gains made prior to 11 March 2020). Gains which exceed the lifetime limit are taxed at the normal CGT rates according to the taxpayer's level of income in the relevant tax year. From 6 April 2025, the rate of CGT will increase to 14% and from 6 April 2026 to 18%, on disposals up to £1M. 

The qualifying conditions for Business Asset Disposal relief are that:

• the company must be the individuals ‘personal company’ - broadly this means holding at least 5% of the ordinary share capital and have ability to exercise at least 5% of the voting rights
• the individual must be an officer or employee of the company
• the company must be a trading company or the holding company of a trading group - this means that investment companies, including those which primarily hold buy to let properties, will not benefit from the reduced rate of CGT

Replacing business assets (roll-over relief)

When certain business assets are sold and the proceeds used to acquire a new business asset, roll-over relief may be available on any gain made on the disposal. The individual is required to elect for this relief.

Where relief is claimed, the gain on the disposal is reduced from the consideration for the acquisition of the new asset. Consequently, when the new asset is sold, tax will be payable on the increased gain.

The relief is only normally available if the replacement asset is purchased in the 12 month period preceding the disposal of the old asset or three years after, although HMRC has discretion to extend the period.

Charitable gifts

There's no CGT payable where assets are gifted to a charity. These gifts are on a no loss/no gain basis, similar to a transfer between spouses. The charity is deemed to acquire the assets at the donor’s acquisition cost. This will only relevant if the charity is liable to CGT on disposal of the asset. In most cases charities are exempt from CGT on disposals, provided the assets are used for a charitable purpose.