Capital Allowances & Gains

When you invest in an asset you are expecting to make a return and when you do you could end up paying tax.

So it makes sense to ensure that you are receiving tax relief for the initial investment and you’re claiming capital gains allowances on any profit that you make.

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Capital gains

A capital gain is when you sell something that has appreciated in value during your term of ownership.

For companies, this usually means things like machinery, land and buildings that have been bought and increase in price during their ownership.

For individuals, the most likely source of a capital gain is property ownership.

The minimum capital gains tax rate (as of 2021) for basic rate taxpayers is 18% on residential property and for higher rate taxpayers this rises to 28%.

But the amount you pay is dependent upon the sort of asset you have sold and how much you have made so it pays to take advice.

Capital gains for businesses

A capital gain for a business also has a number of rules around it so it is important to make sure that your company is set up correctly before you start investing.

In the normal course of business, if you make a capital gain on an asset you have bought then you’ll need to pay tax and it depends upon whether you bought it to use or to sell.

But when you decide to exit your business then different rules and allowances apply.

Sole traders are allowed Business Asset Disposal Relief (known as Entrepreneurs’ Relief before April 2020) as long as;

must be an employee or officeholder of the company (or one in the same group)

they are a sole trader or business partner

For limited companies, business owners who sell their shares;

they’ve owned the business for a minimum of 2 years

and the company’s main activities must be in trading (rather than non-trading activities like investment) - or it’s the holding company of a trading group

Capital allowances

If you invest cash in developing your business then you should receive some form of credit for this and that’s where capital allowances come in.

Often, investment in an asset won’t pay off in terms of increased profit for a number of years and so capital allowances are designed to help.

The most obvious types of capital equipment for businesses are things like:

cars, vans and trucks

operational machinery

computers and office equipment

But you can also claim for

refurbishment of premises

developing or buying patents

dredging

extracting minerals

buying business premises

But this isn’t an exhaustive list so if you are at all unsure then you should contact us for a chat.

Capital allowances

Surprisingly, there are times when you might not want to claim your capital allowances on assets you have bought and this is where having an expert on your side really helps.

You may not want to claim your capital allowances if:

your business was coming to an end and you wanted to decrease balancing charges on cessation

your profits (self-employed or in partnership) are low enough to be covered by your personal allowances

you decide to show higher profits for pension contribution or mortgage purposes

you are preparing your business for sale and want to sell with greater retained asset value for tax purposes

you need to avoid an income tax charge from excessive Gift Aid donations

you choose to increase an expected tax loss for a later year when you would have other income or capital gains for sideways loss relief

you need to utilise some losses brought forward that may otherwise be lost

So you can see that the picture isn’t as straightforward as you may think.

Get in touch and make the best use of your allowances

So you can see that the picture isn’t as straightforward as you may think.

We’ll show you how to organise your affairs so that you don’t get hit with a nasty tax bill and we’ll be proactive in identifying opportunities to save in the future.

Book a call now and let’s talk.

Capital gains & Allowence FAQ’S

What is Capital Gains Tax?

Capital Gains Tax (CGT) is a tax levied on the profit or gain realized when an individual or entity sells or disposes of a capital asset, such as property, stocks, bonds, art, or other investments, at a price higher than its original purchase price.

What is the CGT allowance?

The Annual Exemption Allowance (AEA) for capital

Gains tax is £12,300 in the 2022/23 tax year

From April 2023 this will reduce to £6,000.

This will reduce further to £3,000 from April 2024.

What rate is CGT charged at?

In the UK, individuals may be subject to different CGT rates depending on their income and the type of asset, the rates are typically and certain investment types.

What happens if I make a loss?

if you make a capital loss when selling an asset, you can use that loss to reduce your overall Capital Gains Tax (CGT) liability in several ways.

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