Capital Gains Tax - Rules for Business Assets from April 6th 2000
There are special rules for Business Assets, the effect of which is to greatly reduce the CGT on them.
Business Assets do not only include the obvious assets owned by business people, but also:-
- Employees (including Company Officers) with shares in their employer's non-trading company, provided the employee does not have a material interest. This is broadly a holding that, together with shares held by associates, gives the employee more than 10% of the voting rights. Even employees of the largest companies are included.
- Shareholding in quoted trading companies in which holder is not the employee but can exercise at least 5% of the voting rights.
- Most shareholdings in unquoted and small companies. In practice this means business owners, their partners and any other shareholders in the family, as well as any holdings held by investors or business angels can benefit form Business Assets relief.
- All shareholdings in AIM listed companies.
All of these cases benefit from the Business Assets Taper Relief which, after 2 years, causes CGT to be levied on only 25% of any gain.
So an employee in an appropriate company who is sitting on a £40,000 Business Assets gain would, if the shares had been owned for over 2 years, only be potentially liable to CGT on £10,000 of that gain, a charge (if they were a higher rate taxpayer) of £4,000. Not bad, considering that the income tax on a £40,000 bonus would have been £16,000.
The detail is complex and planning is essential. Making a mistake could result in the unnecessary payment of thousands of pounds in tax. In the above example choosing to sell even a day before the 2 years were up would result in an £8,000 CGT bill if the shares had been held for between 1 and 2 years and the annual allowance was fully utilised elsewhere..
If you think that you may have assets that qualify as business assets under these rules, talk to us. If you think that you may be going to acquire some, (e.g. start a business, or invest in that of a friend or family member) then discuss it with us in advance so that we can develop the most effective route.
Last updated on March 3, 2010