The decision to sell capital assets should first of all be driven by investment considerations rather than tax. As such we’d recommend a chat with a Menzies Wealth Management (MWM) Independent Financial Adviser.
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What to consider before tax year end
Provided it makes investment sense, you may wish to consider the following points before the tax year end:
- The first £3,000 of gains are generally CGT-free.
- Each spouse has their own annual exemption, as indeed do children. As the annual exemption cannot be carried forward, it will be lost if not used.
- Similar to the above, transferring assets to a lower earning spouse may create an opportunity to utilise their basic rate band so that CGT applies at 18% rather than 24%.
- The CGT rates for residential property are the same as non-residential property at 18% for basic rate taxpayers or 24% for higher and additional rate taxpayers.
- A Bed & ISA will allow you to utilise the current years ISA Allowance by moving investments from an unwrapped environment to the ISA Tax Wrapper. This is achieved by disposing of the unwrapped investment and repurchasing it via an ISA. The disposal of the unwrapped investments may be liable to CGT but once inside the ISA, the investments are sheltered from CGT in the future.
- You could also “straddle” a disposal across tax year end to make use of two annual exemptions. Alternatively, where you are planning on selling an asset, you may simply wish to consider delaying the disposal until after the end of the 2026/27 tax year. This may be helpful from a cash flow perspective as any tax arising will not then be due until 31 January 2029, unless you are selling a residential property, the tax on which is due within 60 days of completion.
- Sale by one spouse and repurchase by the other (Bed & Spouse). This technique may also be used to establish a loss that can be set against any gains.
Taxation of Gains on Property – Main Residence
One of the most generous capital gains tax reliefs remains that for the main residence, or home. In broad terms, when you buy a house and live in it as your main home and then sell it, any gain is generally exempt from capital gains tax.
When selling a property that has been your main residence at some point, the final nine months of ownership are deemed to be CGT exempt whether you were living there or not. If you have more than one home, you should consider the timing of a sale or making a main residence election. As there are time restrictions on making the main residence election, we strongly recommend you speak to us should you think this could be an issue or if your circumstances change.
Uk Residential Property
The top rate of CGT on the disposal of residential property is 24%. The lower CGT tax rate for residential property is 18%.
Where CGT is due on the disposal of UK residential property by a UK resident individual or trustees, an online return will need to be filed, together with payment on account of the CGT due. This needs to be done within 60 days of the date of completion of the transaction.
Taxation of gains made by non-residents – Residential
From 6 April 2015, the CGT legislation changed so that non-residents are liable to tax on disposals of UK residential property. As part of the regime, non-residents will have the option to rebase their properties to 6 April 2015 value so that only the growth in value after this date is taxable.
Under these regulations, the criteria for when a main residence election can be made will be possible ONLY if one of the following conditions is met:
- The individual is a tax resident in the same country as the property for which they wish to make the main residence election; or
- The individual spends at least 90 nights in the property (or if he or she owns more than one property in that country, 90 nights between all the properties).
This was originally introduced to prevent non- residents simply electing for their UK properties to be their main residence. However, the regulations have knock-on implications for UK residents since a UK resident individual who owns a property overseas will be able to elect for that property to be their main residence, only if they spend at least 90 midnights there. If you are already a non-UK resident or are considering moving abroad, you should consider your CGT position in advance of either selling or relocating overseas. HMRC must be notified within 60 days of the sale or disposal of a UK property and a CGT return completed.
Taxation of gains made by non-residents – All types of property
Gains made by non-residents on the disposal of all types of UK immovable property are taxable in the UK.
This includes:
All non-resident persons’ gains on disposals of interests in UK land will be chargeable and;
Indirect disposals of UK land will be chargeable. This refers to the disposal of businesses that derive at least 75% of their asset value from UK land.
As part of these changes, non-residents are able to rebase residential properties not previously within the rules, to the 6 April 2015 value so that only the growth in value after this date is taxable. Non-residents are also able to rebase non-residential land or property or shares in property-rich companies to the 6 April 20219 value. HMRC must be notified within 60 days of the sale or disposal of a UK property and a CGT return completed.
Business Asset Disposal Relief
Where an individual disposes of an asset that qualifies for Business Asset Disposal Relief (BADR) – formerly Entrepreneurs’ Relief – the capital gain arising will be taxable at a lower rate. As previously announced in the Autumn 2024 Budget, the rate for BADR will increase to 18% for disposals on or after 6 April 2026. The 2025/26 rate for disposals was 14% and 10% for disposals prior to 6 April 2025.
The lifetime limit decreased from £10m to £1m of capital gains with effect from disposals on or after 11 March 2020.
There are a number of important conditions, but generally BADR applies to:
- The sale of all, or part of a trading business
- The sale of shares in a qualifying company where you hold more than 5% of the nominal share capital and voting rights. From 29 October 2018 this was extended to also require you to be entitled to 5% of the distributable profits and assets, or alternatively, to receive 5% of the proceeds if the company’s ordinary shares were to be sold
- You are an officer/employee of the company.
Planning may be necessary in order to adjust shareholdings so that the 5% requirement is held or so that other family members may also qualify for BADR. There is a two-year ownership and trading requirement in all cases so early planning, ahead of an exit, is important.
If you do hold shares in a company or have any property which you think may be affected, a regular review to ensure that BADR will be available on ultimate disposal is recommended.
Investors’ Relief
Investors’ Relief (IR) provides a further separate lifetime limit of £1m, reduced from £10m for disposals before 30 October 2024. The relief has historically provided a reduced tax rate of 10% on qualifying investments. Following the announcements in the Autumn 2024 Budget, the rates of tax charged where IR is claimed will also go up in line with the rates for BADR, on the same dates. 18% for disposals on or after 6 April 2026, 14%, for disposals up to 5 April 2026.
There are a number of important conditions with regards to the relief:
- It can apply to disposals of shares in unquoted trading companies or the holding company of a trading group
- The shares must be ordinary shares, subscribed for and fully paid in cash
- The shares must be issued on or after 17 March 2016 and disposed of on or after 6 April 2019
- There are restrictions on investors being employees or directors of the company
- The shares must have been issued and subscribed for at arm’s length
Unlike BADR, there is no minimum qualifying percentage.
Tax efficient investments
It is possible to obtain additional tax reliefs by acquiring tax efficient investments. For some high-income individuals who are restricted in their ability to make pension contributions, they may find that such investments are the only realistic options to reduce income tax.
However, such investments carry risk to capital and may not, therefore, be suitable, even if they are tax efficient. Particular care should be taken when investing in EIS, SEED EIS or VCTs. A Menzies Wealth Management Independent Financial Adviser will be invaluable when considering this.
