Capital gains tax is a tax on the profit you make when selling an asset that has increased in value. You are taxed on the gain you make not the total amount of money you receive. In the latest blog from our Budget Summary series, we look at some of the changes to capital taxes that have been introduced.
Download our Spring Budget 2017 Summary for a complete look at the details of the Budget. Our full summary focuses on the issues likely to affect you, your family and your business.
Capital gains tax (CGT) rates
The current rates of CGT are 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains; mainly chargeable gains on residential properties that do not qualify for private residence relief.
The rate for disposals qualifying for Entrepreneurs’ Relief is 10% with a lifetime limit of £10 million for each individual. Entrepreneurs’ Relief is targeted at working directors and employees of companies who own at least 5% of the ordinary share capital in the company and the owners of unincorporated businesses. In 2016/17 a new relief, Investors’ Relief, was introduced which also provides a 10% rate with a lifetime limit of £10 million for each individual. The main beneficiaries of this relief are external investors in unquoted trading companies.
CGT annual exemption
The CGT annual exemption is currently £11,300 for 2017/18.
Inheritance tax (IHT) nil rate band
The nil rate band has been £325,000 since April 2009 and is set to remain frozen at this amount until April 2021.
IHT residence nil rate band
Legislation has already been enacted to introduce an additional nil rate band for deaths on or after 6 April 2017, where an interest in a main residence passes to direct descendants. The amount of relief is being phased in over four years; starting at £100,000 this year and rising to £175,000 for 2020/21. For many married couples and civil partners the relief is effectively doubled as each individual has a main nil rate band and each will potentially benefit from the residence nil rate band.
The additional band can only be used in respect of one residential property, which does not have to be the main family home, but must at some point have been a residence of the deceased. Restrictions apply where estates are in excess of £2 million.
Where a person died before 6 April 2017, their estate will not qualify for the relief. A surviving spouse may be entitled to an increase in the residence nil rate band if the spouse who died earlier has not used, or was not entitled to use, their full residence nil rate band. The calculations involved are potentially complex but the increase will often result in a doubling of the residence nil rate band for the surviving spouse.
The residence nil rate band may also be available when a person downsizes or ceases to own a home on or after 8 July 2015 where assets of an equivalent value, up to the value of the residence nil rate band, are passed on death to direct descendants.
Business Investment Relief
The government has changed the rules for the Business Investment Relief scheme, which took effect from April 2017, to make it easier for non-UK domiciled individuals, who are taxed on the remittance basis, to bring offshore money into the UK for the purpose of investing in UK businesses. The government will continue to consider further improvements to the rules for the scheme to attract more capital investment in UK businesses by non-UK domiciled individuals.