If you’re a business owner in the UK, it’s important to know about Capital Gains Tax. This tax is charged on the profit you make when you sell a business asset.
In this article, we’ll explain what Capital Gains Tax is, and give you some tips on how to reduce your tax bill.
What is Capital Gains Tax?
Capital Gains Tax is a tax that is charged on the profit you make when you sell a business asset. This could be anything from property to shares in a company.
The amount of Capital Gains Tax you pay will depend on how much profit you make, and what tax bracket you fall into.
If you’re a higher-rate taxpayer, you’ll pay 28% Capital Gains Tax on any profit you make. If you’re a basic-rate taxpayer, you’ll pay 18% Capital Gains Tax. There are also some special rates for certain types of assets, such as art or antiques.
Capital Gains Tax Variations Based on Asset
Capital Gains Tax rates depend on the type of asset.
For example, if you sell shares in a company, you’ll pay Capital Gains Tax on the profit you make. But if you sell your house, you won’t have to pay Capital Gains Tax unless the profit is more than £11,100.
There are also some special rules for certain types of assets. For example, if you sell a painting that’s more than 50 years old, you won’t have to pay Capital Gains Tax on the profit.
Reducing Your Capital Gains Tax Bill
There are a few ways that you can reduce your Capital Gains Tax bill.
1. Annual Exemption
Firstly, you can make use of the annual exemption. Annual exemption is the amount of profit you’re allowed to make each year without having to pay Capital Gains Tax.
For the 2022/23 tax year, the annual exemption is £12,300. This means that if your total profit from all your sales is less than £12,300, you won’t have to pay any Capital Gains Tax.
To take advantage of the annual exemption, you need to make sure that you sell your assets in the right order. For example, if you have a painting and a house that you’re thinking of selling, you should sell the painting first.
That way, you’ll be able to use the annual exemption on the profit from the sale of the painting, and only pay Capital Gains Tax on any profit from the sale of the house.
2. Basic-Tax Payer
Another way is to make sure you’re a basic-rate taxpayer when you sell the asset. This means you’ll only pay 18% Capital Gains Tax, instead of 28%, on the profit you make.
To do this, you need to make sure that your total taxable income for the year is less than £50,270.
If you’re a higher-rate taxpayer, there are still some ways to reduce your Capital Gains Tax bill. For example, you can use losses from other investments to offset any Capital Gains Tax you might owe.
3. Married or Civil Partnership
If you’re married or in a civil partnership, you can also transfer assets to your spouse or partner. This means that they will be liable for Capital Gains Tax, but it could help to reduce your overall tax bill.
4. Entrepreneurs’ Relief
Finally, you can invest in a business that qualifies for Entrepreneurs’ Relief. Entrepreneurs relief is a special rate of Capital Gains Tax that applies to certain types of businesses. This relief allows you to pay a lower rate of Capital Gains Tax on the sale of your business.
If you qualify for entrepreneur’s relief, you’ll only pay Capital Gains Tax at a rate of £12,300.
Final Thoughts
Capital Gains Tax in the UK can be a complex topic, but it’s important to understand if you’re a business owner.
By taking advantage of the annual exemption and making sure you’re a basic-rate taxpayer, you can reduce your Capital Gains Tax bill. And if you invest in a business that qualifies for entrepreneur’s relief, you could pay an even lower rate of Capital Gains Tax.
To know more, get in touch with us today.
