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.
Example of CGT rates 2016/17
Annie, a higher rate taxpayer, will pay tax at these rates on the following chargeable gains after deduction of the annual exemption:
The annual exemption can be used in the most favourable way for the taxpayer – that is against the residential property gains in this example.
The nil rate band has remained at £325,000 since April 2009 and is set to remain frozen at this amount until April 2021.
An additional nil rate band is being introduced 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 in the first 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 dies 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.
Employee Shareholder Status (ESS) was made available from 1 September 2013 and enables employee shareholders, who agreed to give up certain statutory employment rights, to receive at least £2,000 of shares in their employer or parent company free of income tax and NICs. They also benefit from a CGT exemption on the eventual gains on shares with an original value of up to £50,000. This was subject to a lifetime limit of £100,000 for arrangements entered into after 16 March 2016.
These tax advantages linked to shares awarded under ESS will be abolished for arrangements entered into on or after 1 December 2016. The government has also announced that the status itself will be closed to new arrangements at the next legislative opportunity.
Please contact us for further details if this is an area of interest to you.