It has been a challenging twelve months for business owners. The coronavirus pandemic, mixed with Brexit uncertainty, might have forced you to make some tough decisions.
You may have furloughed staff, stopped taking dividends, or struggled with the cost of making your work environment “Covid-secure”. You’ll also have had to keep on top of the various government schemes and grants intended to help you through the crisis.
On top of all that, there are the perennial worries of managing tax liabilities and submitting returns.
Here at Fingerprint Financial Planning, we can use our expertise and years of experience to help you manage all aspects of your business.
One area in which we recently made a huge difference to one of our clients is around Capital Gains Tax (CGT).
Read on to find out how we could help you manage a CGT liability following the disposal of business assets.
You might be liable for Capital Gains Tax if you sell business assets and make a profit
When you sell certain business assets, such as land and buildings, fixtures and fittings, machinery, or shares, for example, you might make a profit. The “gain” you make on this “disposal” could be liable for CGT.
Tax on business disposals applies if you are self-employed as a sole trader or in a business partnership. If you own a limited company, you’ll pay tax on profits through Corporation Tax.
You’ll need to work out the gain from the disposable to decide if tax is due. The gain can be thought of simply as the difference between what you paid for your business asset and the amount that you sold it for.
You can deduct certain costs from your gain, such as those incurred to improve the asset. Other costs, such as interest you owe on a loan used to buy the asset, cannot be deducted.
This is not an exhaustive list of what you can and can’t deduct, so speak to us if you are unsure if a cost is deductible.
Using the market value to assess your gain
Under certain circumstances, the gain is not the difference between what you paid and the selling price. You might need to use the market value in your calculations if:
- you give the asset away
- you sell it for less than it was worth (to help the buyer)
- you inherit the asset
- you owned it before April 1982.
Tax relief
You may be able to reduce or delay the amount of CGT you pay if you are eligible for tax relief.
- Entrepreneurs’ Relief – This relief applies to sole traders, business partners, and those with shares in a “personal company.” It allows you to pay only 10% CGT on qualifying profits if you sell all or part of your business.
This is instead of the normal rates, which could be as high as 28% depending on what asset you are selling and what your marginal tax rate is.
- Business Asset Rollover Relief – This tax relief allows you to delay paying CGT if you dispose of an asset you intend to replace.
You’ll need to buy the replacement asset within three years of disposing of the old one and both the old asset and its replacement must be used in your business.
- Incorporation Relief – If you transfer all your business and its assets (except cash) in return for shares in the company, you can delay paying CGT.
These reliefs can be complex, and errors could result in an unexpected liability.
Fingerprint Financial Planning’s own planner, Paul, recently lowered the liability for one of his clients from 45% down to just 5%, so speaking to us could make a real difference.
Get in touch
At Fingerprint Financial Planning we can use our wealth of experience and expertise to help you in all aspects of your business. If you are looking to make a disposal but are wary of the CGT liability you might be left with, speak to us.
Get in touch by emailing hello@fingerprintfp.co.uk or call 03452 100 100.
Please note
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation which is subject to change.
