Navigating Capital Gains Tax: What Bedford Business Owners Need to Know

Capital Gains Tax (CGT) is a tax on the profit when you sell or dispose of an asset that has increased in value. For business owners in Bedford, understanding how CGT works is essential for managing your finances effectively, especially when selling business assets, shares, or property.

In this article, we’ll explore the key aspects of Capital Gains Tax that Bedford business owners need to know, helping you navigate this tax efficiently and plan for future growth.

1. What is Capital Gains Tax?

Capital Gains Tax is charged on the profit made from selling or disposing of an asset. The tax is only applied to the gain you’ve made, not the total amount of money you receive. In the UK, individuals, trustees, and personal representatives may be liable for CGT, with different rates and exemptions applying depending on the type of asset and your overall income.

2. When Does Capital Gains Tax Apply?

CGT applies when you sell or dispose of assets such as:

• Business Assets: Including intellectual property and goodwill
• Shares: In a business (unless they are held in an ISA or a PEP).
• Property: That isn’t your main home, such as investment properties or commercial premises.
• Other Assets: Such as valuable personal items, including art, antiques, and jewellery.

It’s important to note that CGT is only payable if your gains exceed the annual tax-free allowance, which for individuals is £3,000 for the 2024/25 tax year.

3. Capital Gains Tax Rates

The rate of CGT you’ll pay depends on your total taxable income:

• Basic Rate Taxpayers: 10% on gains from most assets and 18% on gains from residential property.
• Higher or Additional Rate Taxpayers: 20% on gains from most assets and 24% on gains from residential property in the 2024/25 tax year.

Business owners should consider the impact of other income on their tax band, as this can push gains into a higher tax bracket.

4. Reliefs and Exemptions

There are several reliefs and exemptions available to help reduce your CGT liability:

• Business Asset Disposal Relief (formerly Entrepreneurs’ Relief): This provides a reduced CGT rate of 10% on the first £1 million of lifetime gains when selling all or part of your business, provided certain conditions are met.
• Rollover Relief: If you sell a business asset and use the proceeds to buy another business asset, you may be able to defer the CGT.
• Gift Hold-Over Relief: When you give away business assets or shares, you may be able to pass the CGT liability to the recipient.
• Annual Exemption: Every individual has an annual CGT allowance (£3,000 for 2024/25), which means you only pay tax on gains above this amount.

5. Reporting and Paying Capital Gains Tax

You must report your capital gains to HMRC and pay any tax owed by 31 January following the end of the tax year in which the gain was made. For residential property gains, you must report and pay CGT within 60 days of the sale.

Accurate record-keeping is crucial to ensure you can correctly calculate and report your gains. You should keep records of the purchase price, costs of improvements, and any expenses related to the sale, as these can be deducted from your gain.

6. Planning for Capital Gains Tax

Effective planning can help you minimise your CGT liability. Here are some strategies to consider:

• Timing: If possible, spread the sale of assets over different tax years to make the most of your annual exemption.
• Gifting: Consider gifting assets to family members or using trusts to reduce your CGT liability.
• Maximising Reliefs: Ensure you take advantage of all available reliefs, such as Business Asset Disposal Relief or Rollover Relief.

Conclusion

Capital Gains Tax can have a significant impact on the financial health of your business, but with careful planning and the right advice, you can manage it effectively. Understanding the rules, rates, and reliefs available will help you make informed decisions and minimise your tax liability.

For Bedford business owners, discussing your specific situation with an experienced accountant can provide valuable insights. Tailoring your approach to CGT with professional guidance can help you make the most of available reliefs while ensuring compliance with HMRC requirements.

Click here to see how easy it is to switch to Cowley Holmes