05 Nov CGT for individuals, sole traders and partnerships
Tax-planning is important when you pay Capital Gains Tax on any profit you make. You have to pay CGT when you are selling your whole or part of a business. If you are a sole trader or trade as a limited company, the business capital gains will act a little differently for you. So, if you are self-employed, your personal gains and business gains will be processed through capital gains tax (CGT). However, in case a company made gains, it will be dealt through corporate tax.
Meanwhile, your business capital gains increase in tax liabilities. But capital gains will prompt you to plan your taxes. Business owners can make tax-planning. CGT is an important pathway towards tax relief. In many cases like if you are in civil in partnership, you can transfer assets without paying any CGT. We will explain about tax-planning further in coming paragraphs.
What is Capital Gain Tax?
You pay Capital Gains Tax on any profit you make when you are selling your whole or part of a business. There are many ways to dispose of a legitimate business. If you are making profit from the disposal of assets that increased its value, you have to pay Capital Gains Tax on it. For example if you sell it, just give your asset to someone or you can give it away as a gift or just simply swap it for something else.
You are liable to pay this form of tax if you are self-employed or a sole trader in a business partnership. Limited companies on the other hand pay corporate taxes. If you own business assets in the form of property, fixtures, factories, shares and trademarks, you would be required to pay this tax.
Here’s the current rate of CGT
The good news for you that you don’t have to pay CGT if your total gains are within the annual tax-free allowance, which is £11,100. The earnings above that amount will be liable to tax at a rate of 10%. Further, the 10% will be applicable to the basic-rate income taxpayers and 20% will be payable by the higher tax rate.
Here’s how you can pay your CGT
To pay your CGT, you have to send a self-assessment return to HMRC. To ease your nerves, HMRC will ask you to register for self-assessment beforehand. You must complete this step before 31st October for paper returns and for electronic returns, the date will be 31st of January. The late submission will result in fines and penalties.
You can calculate the due amount. You just have to know about the financial basics in order to quickly calculate the CGT. Here’s how you can do that.
- First, you have to calculate the gain for every asset.
- Then make a sum for all the gains from all the assets that you disposed of in the tax year.
- You can subtract any losses that are allowable. Allowable losses mean that you can include those losses which haven’t given you any gain or profit. That includes the disposed of assets to the family members and claims for the assets that lost its value.
The exciting benefit of being an entrepreneur
Get your hopes high and sharpen your entrepreneurial skills. Because HMRC will give you relief if you are an ambitious entrepreneur. Entrepreneurs relief will sufficiently benefit you by reducing the amount of CGT. HMRC had started this scheme exclusively to encourage startup businesses. They provide a rate of 10% on all gains on qualifying assets.
Let’s see if you qualify for entrepreneurs relief
If you are disposing of any of the given assets, you are qualified. If you are disposing your whole or part of the business which includes assets after closing. Secondly, if you own shares in a company where you have at least 5% shares and hold voting rights you can claim this relief. Also, you can avail this scheme on the assets you lent to your company.
How tax-planning can provide benefit
To save money, people usually struggle to figure out what is an effective tax planning strategy for them. CGT planning pose an opportunity to save your money in terms of tax. Basic planning include using your spouse’s CGT allowance. Loss making assets can be sold to offset against gains if you have crossed the CGT allowance. You have to ensure the deduction of allowable costs of buying during when you work out CGT.
This will give you benefit when you sell your business; you will be taxed less. You have to be vigilant about your CGT whenever you are planning to sell or to those who are self-employed.
Some people usually confuse CGT tax-planning with inheritance tax-planning. You don’t have to pay tax when you inherit a property. You may have to pay inheritance tax if deceased’s estate can’t or doesn’t pay it.
Explore other options for relief
Managers, owners and even non-financial managers usually know the way they can defer or delay their CGTs. If you are scratching your head wondering that you are not eligible for the entrepreneur’s relief, then don’t worry. You can still go through some options to look for the relief. These reliefs include delaying or reducing the amount of CGT.
You can look for Business Asset Rollover Relief. This will allow you to delay the CGT payments. This will be applicable when assets are disposed of if they are replaced.
Gift Hold-Over Relief is another type of relief that you can claim if you are transferring a business. This will transfer the owed CGT to the person you are transferring your business to.
If you are transferring the business to another company, you can always avail the option of Incorporation Relief. This will delay the CGT for you.
Get expert advice
Planning to return the personal and business capital gains can become a complicated process sometimes. If you are not aware of the technicalities, especially when you feel that you can avail some sort of relief; it is better that you take some expert onboard to sort your tax matters.