Category: Capital Gains Tax

Crypto currency or crypto is a digital asset designed to work as a medium of exchange.

There has been a surge in buying and holding different types cryptoassets (such as Bitcoin) as a personal investment, usually for capital appreciation in its value or to make purchases.

Cryptoassets are not considered as a currency or money by key the financial institutions of world. There are bright chances as Rishi Sunak suggested that UK might be the first country to link crytoassets to their currency.

The governments and taxation bodies around the world including HMRC are now actively looking forward to design taxation systems for cryptoassets. As per HMRC’s current suggested guidelines cryptoassets are treated similarly as shares.

The situation becomes interesting for those who are not UK tax resident; they are NOT generally exposed to UK tax. However, there are anti-avoidance rules in place for those who leave UK and come back to UK within 5 years.

There two taxation treatments available for dealing with cryptos:

• Capital Gains Tax
• Income Tax

Capital Gains Tax

For most of the taxpayers buying, holding and selling cryptocurrency will be deemed to carry on an investment activity and be subject to capital gains tax.

They will be liable to pay Capital Gains Tax when they dispose of their cryptoassets.

This includes:

• selling tokens
• exchanging tokens for a different type of cryptoasset
• using tokens to pay for goods or services
• giving away tokens to another person (unless it is a gift to your spouse or civil partner)

 Income Tax

The taxpayers who deal with cryptos (buying and selling, or receiving) as a business / trade will be deemed as carrying on trade of cryptos and will be subject to Income Tax. HMRC uses the concept of badges of trade when considering the profit motive.

It is worth mentioning here the rates of Income tax are higher than Capital gains tax.

Most of the holders of cryptos would be the ‘day-trader’ who is actively buying and selling cryptoassets with the view to realising a short-term profit.

Even in these circumstances, it is generally difficult to fall within the description of a ‘trader’ and HMRC generally accept that individuals will be subject to the more favourable rates of capital gains tax. If the taxpayer’s activity is trading, then Income Tax will take priority over CGT and will apply to profits (or losses).

HMRC has published further information for businesses and companies about the tax treatment of cryptoasset transactions.

Individuals will be liable to pay Income Tax and National Insurance Contributions on cryptoassets which they receive from:

• their employer as a form of non-cash payment
• mining, transaction confirmation or airdrops

There may also be cases where an individual is running a business which is carrying on a financial trade in cryptoassets and will therefore have taxable trading profits.

If you need any further information, feel free to contact us.

Each UK taxpayers have an annual exempt amount for Capital Gains Tax (CGT) which is lost if not used. The annual exemption for individuals in 2021-22 is £12,300.

Whilst most taxpayers are aware of the amount of annual tax-free allowance and the exemption for the qualifying sale of the family home there are other items as well that are exempt from Capital Gains Tax CGT.

These include:

• your car
• personal possessions worth up to £6,000 each, such as jewellery, paintings or antiques
• stocks and shares you hold in tax-free investment savings accounts, such as ISAs and PEPs
• UK Government or ‘gilt-edged’ securities, for example, National Savings Certificates, Premium Bonds and loan stock issued by the Treasury.
• betting, lottery or pools winnings
• personal injury compensation
• foreign currency you bought for your own or your family’s personal use outside the UK
• A husband and wife each have a separate exemption. This also applies to civil partners who are treated in the same way as married couples for CGT purposes. Married couples and civil partners should ensure that assets sold at a gain are either jointly owned or that each partner utilises their annual exempt amount wherever possible.

Have a look at our Capital gains tax services page.

Any unused part of the annual exempt amount cannot be carried forward and is forfeited if unused in the current tax year.

If you are looking to know more about this, feel free to book a free consultation.

Capital Gains Tax (CGT) is normally charged at a simple flat rate of 20% when you sell shares unless they are in a CGT free wrapper such as an ISA or pension.

If you only pay basic rate tax and make a small capital gain you may only be subject to a reduced rate of 10%. Once the total of your taxable income and gains exceeds the higher rate threshold, the excess will be subject to 20% CGT. There is also an annual CGT exemption. This means that in the current tax year you can make £12,300 of gains before paying any CGT. The allowance applies to each member of a married couple or civil partnership.

https://www.gov.uk/

The usual due date for paying CGT you owe to HMRC on the sale of shares is the 31 January following the end of the tax year in which a capital gain was made. This means that CGT for any gains crystalised before 6 April 2021 will be due for payment on or before 31 January 2021. However, if you waited until the start of the next tax year you would have until 31 January 2022 to pay any CGT due. For example, you could benefit from this extra year to pay CGT due by waiting to crystallise a gain from the 5 April 2021 (2020-21 tax year) until the 6 April 2022 (2021-22 tax year).

Have a look at our Capital gains tax services.

The normal way to report a gain on the sale of shares is to complete the relevant sections of your Self-Assessment tax return. When calculating your gain, you can deduct certain costs of buying or sell shares such as stockbrokers’ fees or Stamp Duty Reserve Tax.

If you are looking to know more about this; feel free to book a free consultation.

Business Asset Rollover Relief is a valuable relief that allows you to defer payment of CGT on gains made when you sell or dispose of certain assets and use all or part of the proceeds to buy new assets. The relief means that the tax on the gain of the old asset is postponed. The amount of the gain is effectively rolled over into the cost of the new asset and any CGT liability is deferred until the new asset is sold.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg60280

Where only part of the proceeds from the sale of the old asset is used to buy a new asset a partial rollover claim can be made. It is also possible to claim for provisional rollover relief where you expect to buy new assets but haven’t done so yet. Interestingly, rollover relief can also be claimed if you use the proceeds from the sale of the old asset to improve assets you already own. The total amount of rollover relief is dependent on the total amount reinvested to purchase new assets.

Have a look at our Capital gains tax services.

HMRC’s internal manual lists the following key conditions for the relief:

1. The old assets are within one of the classes listed in CG60280 and have been used solely for the purposes of the trade throughout the period of ownership, and
2. the whole of the consideration obtained for the disposal is applied in acquiring new assets within one of the classes listed in CG60280 which are, on the acquisition taken into use wholly for the purposes of the trade.

There are also other qualifying conditions to be met to ensure entitlement to any relief. For example, you should purchase the new assets within 3 years of selling or disposing of the old ones (or up to one year before). Under certain circumstances, HMRC has the discretion to extend these time limits. In addition, both the old and new assets must be used by your business and the business must be trading when you sell the old assets and buy the new ones. You must claim relief within 4 years of the end of the tax year when you bought the new asset (or sold the old one, if that happened after).

If you are looking to know more about this; feel free to book a free consultation.

Business Asset Disposal Relief (BADR) in simple words is a tax relief that the seller of a business can benefit from on sale of the business. This relief was formerly as Entrepreneurs Relief until 6th April 2020.

This incentive set up by the UK Government to encourage people to set up a business, put time and energy into building it and then reward them for their hard work once they are ready to sell it.

Business Asset Disposal Relief formerly known as Entrepreneurs’ Relief before 6 April 2020. The relief was renamed in Finance Act 2020. The name change does not affect the operation of the relief.

Where this relief applies:

Business Asset Disposal Relief (BADR) applies to the sale of a business, shares in a trading company or an individual’s interest in a trading partnership.

Where this relief is available CGT of 10% is payable in place of the standard rate. There are a number of qualifying conditions that must be met in order to qualify for the relief.

History of applicable rates:

When the relief was first introduced there was a lifetime limit of £1 million for gains. This was increased to £2 million from 6 April 2010, to £5 million from 23 June 2010 and to £10 million from 6 April 2011. The limit was reduced to £1 million on 11 March 2020.

The £1m lifetime limit means that individuals can qualify for the relief more than once subject to an overriding total limit of £1m of qualifying capital gains. The changes to the lifetime limit are not retrospective.

Please visit our Capital Gains Tax Page.

Who can claim:

To qualify for relief, you should be either an officer or employee of the company and own at least 5% of the company and have at least 5% of the voting rights. There are also other qualifying conditions that must be met in order to qualify for the relief.

The minimum period during which certain conditions must be met in order to qualify for Business Asset Disposal Relief increased from one to two years from 6 April 2019.

If you need further information; feel free to contact us.

We consider the taxation of capital gains and some basic facts around Capital Gains Tax (CGT).

A capital gain arises when certain capital (or ‘chargeable’) assets are sold at a profit. The gain is the sale proceeds (net of selling costs) less the purchase price (including acquisition costs).

CGT annual exemption:

Every tax year each individual is allowed to make gains up to the annual exemption without paying any CGT. The annual exemption for 2020/21 is £12,300 (£12,000 in 2019/20). Consideration should be given to ensuring both spouses/civil partners utilise this facility.

Exceptions to the CGT rates

The rates of CGT are generally 10% and 20%. However, 18% and 28% rates apply for carried interest and for chargeable gains on residential property that does not qualify for private residence relief.

If you are looking to know more; please have a look at our Capital Gains Tax page.

Selling at less than the Market Value:

CGT may also apply if you give away an asset or sell it for less than it is worth. This is because CGT under these circumstances is calculated based on the market value of an asset at the time of its disposal, not the amount of money (if any) that you sell it for. HMRC can check your valuation and it is important to keep detailed records regarding the sale and purchase of the asset.

Business assets you may need to pay tax on include:

• land and buildings
• fixtures and fittings
• plant and machinery, for example, a digger
• shares
• registered trademarks
• your business’s reputation

There are various tax reliefs available that can significantly reduce or delay the amount of CGT you are required to pay such as Entrepreneurs’ Relief, Business Asset Rollover Relief and Incorporation Relief. There is generally no CGT payable on gifts to your spouse, civil partner or to a charity.

Capital Gains Tax (CGT) is normally required to be paid by self-employed sole traders or as part of a partnership. It is important to note that CGT is not payable by limited companies or unincorporated associations when they sell an asset and make a gain. Instead, the gain (less any allowable costs and reliefs) is subject to Corporation Tax.

If you are looking to know about this; feel free to contact us.

There are reliefs available if a taxpayer gifts land, property or certain shares to the charity. The reliefs are in Income Tax and the Capital Gains Tax (CGT), provided all the necessary conditions are met. This is important to note that there is no Income Tax relief on donations to community amateur sports clubs (CASCs).

Capital Gains Tax relief

The Taxpayers do not have to pay CGT on land, property or shares they give to charity. Taxpayers may have to pay some tax if they sell for more than the land, property or shares cost, but less than their market value. The gain should be calculated using the amount the charity actually pays, rather than the value of the asset.

Income Tax relief

Where qualifying assets are gifted, the market value of the asset is deducted from the taxpayer’s total income rather than adjusting their basic rate tax band. This should be done for the tax year (6 April to 5 April) in which they made the gift or sale to charity.

Selling land, property or shares on behalf of a charity

When a taxpayer offers a gift of land, property or shares, the charity might ask the taxpayer to sell the gift on its behalf. Taxpayers can do this and still claim tax relief for the donation, but they must keep records of the gift and the charity’s request. Without them, they might have to pay CGT.

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There is usually no Capital Gains Tax (CGT) due on a property which has been used solely as the main family private residence. Conversely, an investment property which has never been used as a private residence will not qualify for relief. This relief from CGT is commonly known as private residence relief.

There are a number of issues taxpayers that own more than one home should be aware. An individual, married couple or civil partnership can only benefit from CGT on one property at a time. However, it is possible to choose which property benefits from a CGT exemption by making an election.

This must be done by nominating one property as your main home by writing to HMRC and specifying (with the full address) which home you want to nominate. All owners of the property must sign the letter. If you want to nominate a home you must do this within 2 years of any relevant change. You must have also lived in the house as your main or only residence at some point in the past.

There are special rules for overseas property and for non-UK residents. It is important to carefully consider the timing and frequency of changing an election.

If a property has been occupied at any time as an individual’s private residence, the last 9 months of ownership are disregarded for CGT purposes – even if the individual was not living in the property when it was sold.

Your UK residence status affects whether you need to pay tax in the UK on your foreign income.

Non-residents only pay tax on their UK income – they do not pay UK tax on their foreign income.

Residents normally pay UK tax on all their income, whether it’s from the UK or abroad. But there are special rules for UK residents whose permanent home (‘domicile’) is abroad.

When a couple is in the process of becoming separated or divorce it is unlikely that they are thinking about the tax implications of doing so. However, it is important that the tax consequences of the break-up are properly considered.

Whilst Income tax does not automatically cause an issue for separating couples, as it is an individually assessed tax, there are other taxes that need to be considered. For example, when a couple are together there is no Capital Gains Tax (CGT) payable on assets gifted or sold to your spouse or civil partner. However, if a couple separate and do not live together for an entire tax year or get divorced then CGT may be payable on assets transferred between ex-partners.

This effectively means that the optimum time for a couple to separate would technically be at the start of the tax year so that they would have up to a year to plan how to split their assets most tax efficiently. Obviously, in the real world most couples will have far more on their minds than deciding to get separated on a certain day, but these issues should be kept in mind.

It is also important to look at making a financial agreement that is agreeable to both parties. If no agreement can be reached, then going to court to make a ‘financial order’ will usually be required. The couple and their advisers should also give proper thought to what will happen to the family home, any family businesses as well as the Inheritance Tax implications of separation and / or divorce.