Capital Gains Tax
Capital gains are the profits that are made from ‘disposing of’ business assets. Common assets often include buildings, registered trademarks and your business’s reputation. Capital gains tax must often be paid when your business makes a capital gain.
Occasions in which you will not pay capital gains tax include gifts to your wife or husband as well as donations to charity. And obviously tax must not be paid on capital losses. This post highlights the workings of capital gains tax to better understand UK tax loopholes.
As mentioned above there are several ways to dispose of assets. By giving a gift to your civil partner or charity, for instance, your company would not be liable to pay any capital gains tax.
However, businesses often dispose of assets by selling their product or service or by swapping one asset for another. In such cases, businesses must pay capital gains tax.
Deductions can be made to your capital gains tax rates in several ways. Fees can be deducted in valuing or advertising an asset, or improving the asset outwith normal repairs. Finally, Stamp Tax Land Duty and VAT can be deducted, unless you can reclaim your VAT.
Capital Gains Tax Relief
There are six types of capital gains tax relief in the UK.
Entrepreneur’s Relief applies to any soletrader, business partner and anyone with at least 5% shares in a ‘personal company’ in which he works or is a member of the board. This relief classification involves a flat 10% corporate gains tax on qualifying profits when selling business assets. Under this classification, inheriting a business will not require paying tax.
Business Asset Rollover Relief
Business Asset Rollover Relief involves a delayed payment of capital gains tax when you dispose of an asset and replace it within 3 years. You must have used the old and new assets in your business.
Incorporation Relief involves delayed payment of capital gains tax when transferring all your business and its assets to another company in return for shares.
Disincorporation Relief might even be possible for businesses becoming sole traders or partnerships after having been a limited company. If you acquire business assets in the disincorporation process you must pay capital gains tax if you decide to sell them later.
Gift Hold-over Relief
Gift Hold-over Relief implies that you will pay no capital gains tax when giving away a business asset but that the person who receives it must pay capital gains tax on it when they wish to sell it. Gift Hold-over Relief only applies to assets that were used in the business of sole traders and partnerships.
Additionally Tax relief can be designated to people that sell their homes unless they’ve used any part of the home just for business, in which case capital gains tax must be paid for those parts.
Knowledge makes the loophole
Now that you know which programmes exist for capital gains tax relief, you may have realised that you are eligible for VAT savings in one of the firms mentioned above.
Tax relief programmes exist for a reason, and if you aren’t already, consider taking what is rightfully yours. There are several forms of relief available for businesses to sharpen their competitive edge.
Business Advisory Services are often utilised in Scotland as they prove themselves an invaluable resource for SMEs and consumers alike in reducing their capital gains tax rate. These business consultants are highly experienced in such matters and will gladly check to ensure you are spending your money as efficiently as possible.
The UK government website was used to verify this article.