My son built and maintained a few websites on behalf of local businesses. Before he started his university course in October he transferred the code and customer details to an established website creation company for £18,000. How should this money be taxed?
It seems your son has a bright future as an entrepreneur. The sum he received is a capital payment for selling his first business and it is taxed as a capital gain. The full gain of £18,000 (assuming no costs) should qualify for entrepreneurs’ relief, which will reduce it by 4/9ths, leaving £10,000. From this sum he can deduct his annual capital gains exemption of £9,600 leaving just £400 taxable at 18%, producing a tax liability of just £72. He should declare the gain on the capital gains tax pages of his 2008/09 tax return.