Paramount Group - Capital Gains Tax

Newsflash

Protecting Tax Free cash

As you generally advise your clients regarding remuneration strategy and more importantly profits extraction it appears, following research with our existing clients that, for those who hold executive/directors pension policies and even those with small self administered schemes, it is now worth a review. This would examine whether it would be advantageous to transfer the existing benefits to a section 32 or section 32A (Block transfer) and start funding a self invested personal pension. For those who have small self administered schemes it is still possible to transfer to a section 32 and have the section 32 self invested, utilising the commercial property occupied by the sponsoring employers company.

Capital Gains Tax

Capital gains tax (CGT) is paid to the Inland Revenue when an individual or company makes a profit by selling or transferring assets to someone else. This could be anything from shares to a painting or a holiday home.

Everyone has an allowance - currently £8,800 a year - before they become liable to CGT. So, if you own anything of value and decided to sell it, you could be presented with a large tax bill. If you do not inform the Inland Revenue of your disposal, you could also be liable for penalties.

The rate of CGT depends on your circumstances. In general terms, you pay tax at whatever your highest rate of tax is, from 40% downwards.

Complicated and detailed calculations are required in order to work out how much CGT is payable on a disposal. For example, selling your main home does not lead to a capital gain - unless it is partially rented or used to run a business, in which case it could be.

But, there are many reliefs and exemptions available, which can reduce or completely wipe out your tax bill - so those who could be liable are often best off it they seek advice from a tax expert.

To encourage investment in smaller companies, the government offers reduced rates of CGT. The Chancellor announced in the pre-Budget speech back in November 2001 that these capital gains tax burdens on businesses would be cut further.

Reduced rates also apply if you invest in companies listed on the alternative investment market (AIM), unquoted companies, or buy shares in the company where you work or are an outside investor and have more than 5% of a company's shares - these are known as business assets.

If you make losses rather than gains from any items, you can offset these against CGT - but this is complicated. You must use up losses from the current year first.

These are set against your gains before taper relief is applied, and are used to take your gains back to zero if they are sufficiently large, not just back to the level of exemption.

Losses carried forward from earlier years get more favourable treatment, as they are used to reduce gains back to the level of the exempt amount. Anything left over can be carried forward and set against gains made in the future.