There are a number of assets that you can sell at a profit without paying capital gains tax (CGT) on the sale. They include:

• Any car that is owned personally, and not by a business.

• Personal possessions worth up to £6,000 each. For example 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, and

• Foreign currency you bought for your own or your family's personal use outside the UK.

Of course, if you make a loss selling any of the above, the losses would not be available to set off against other gains for CGT purposes.

There are also certain reliefs that you can claim to mitigate or defer CGT. These include:

• Business Asset Roll-Over Relief – This applies when you dispose of some types of business asset, which you intend to replace. You may be able to 'roll-over' or postpone the payment of any CGT that would normally be due.

• Incorporation Relief – If you incorporate your business, that is, you transfer your business to a company CGT may not be due at that time.

• Gifts Hold-Over Relief – You may be able to get this relief if you give away a business asset. You can postpone all or part of your gain until the asset is sold or disposed of by the person you gave it to.

• Disincorporation Relief – When a business is transferred from a limited company to the shareholders, it is known as disincorporation. The shareholders continue the business in an unincorporated form – as a partnership or sole trader.

If you are thinking of selling assets that you are concerned may result in a tax charge please contact us for an opinion. Often there are planning opportunities that can be legitimately employed. The key is to plan the transaction carefully to maximise use of reliefs available.

HMRC have had recent successes in the courts that have neutralised tax schemes utilising charity tax reliefs. Here’s what they have to say on the GOV.uk website:

HM Revenue and Customs (HMRC) successfully challenged the tax avoidance scheme used by Nicholas Green and designed by Afortis Limited as part of an ongoing crackdown on charitable tax relief abuse. The First-tier Tribunal ruling and its impact on similar schemes could make sure over £35 million of tax is paid.

Under the scheme, shares were listed on the Channel Islands Stock Exchange at a value significantly more than their real worth. The shares were then gifted to charity at the inflated value. The scheme was designed to allow Mr Green to claim tax relief on the amount that the shares had been listed for, rather than on the much lower amount that the shares were worth.

The tribunal ruled that the relief claimed should be reduced significantly from that claimed by those using the scheme.

This latest decision follows HMRC’s defeat of another scheme using charitable reliefs, promoted by NT Advisors, at a tax tribunal last week.

Nicky Morgan, Financial Secretary to the Treasury, said:

“The government wants to encourage more people to give to charity and has provided tax relief to incentivise this, but we will not tolerate abuse of the system. This case is further evidence of HMRC’s tough action to tackle tax avoidance schemes that seek to abuse charitable giving tax reliefs.

“Taxpayers entering into these arrangements are not only damaging their own reputations, they are harming the reputations of charities that may not be aware they are being used to avoid tax. Anyone thinking of getting involved in a tax avoidance scheme does so at their risk and should know that HMRC will pursue them in collecting the tax that is due.”

Institute for Fiscal Studies director, Paul Johnson, recently spoke at the annual Chartered Tax Advisor Address. He pointed out a number of the unnecessary complications and policies that have left the UK tax system more complex and less efficient.

 “For example:

• There is a basic rate of income tax of 20%, a higher rate of 40% and a top rate now of 45%. What is less well known is that the last government introduced a rate of 60% on a band of income starting at £100,000. This government has maintained it and effectively increased its range considerably. There is now a 60% rate of income tax on income between £100,000 and £121,000 (where it drops back to 40%). It’s hard to make much sense of that.
• Several elements of the income tax system no longer adjust with inflation. The point at which the 45p rate becomes payable, and indeed the point at which the 60p rate becomes payable, is fixed in cash terms and has already fallen by more than 12% relative to the Consumer Prices Index since its introduction. More people will gradually be pulled into these higher rates. There is apparently no plan to stop this.
• This government has accelerated a trend overseen by recent governments which has fundamentally altered the nature of our system of income tax, namely a continued increase in the number of higher rate taxpayers. Numbers have risen from less than 2 million in 1990 to nearly 4 million in 2007 and well over 5 million by 2015. The problem is not necessarily so much the fact of the change – there is a case for, and a case against, such a system – but the fact that this fundamental change to our tax system, which appears to have the support of the three main political parties, has never been announced or properly debated.
• Governments of all stripes have continually cut income tax whilst increasing National Insurance Contributions (NICs) – a tax on earned income. The only reason for this is that income tax seems to be more salient and therefore increases to NIC rates are politically easier.
• The last government and this one raised rates of Stamp Duty Land Tax time and time again. This is one of the worst designed and most damaging of all taxes, yet revenues from it are due to hit £15 billion within just a few years. At the extreme a £1 increase in sale price can now trigger an additional £40,000 tax bill. The tax helps to gum up the entire property market.”

Will any of these comments affect future tax policy? We shall have to wait and see.

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Consider this case study:

Bill Smith, a self-employed electrician, purchased a brand new van 15 March 2014 for £18,000. Due to a downturn in the local economy his trading profits for the year to 31 March 2014 were just £9,400. Fortunately, he had secured a number of regular contracts for the following year that should net at least £30,000 in the trading year to 31 March 2015, however, he would be required to travel and hence the purchase of the new van.

Towards the end of June 2014 Bill took his books to his accountant to work out his tax position for 2013-14. In July 2014 Bill was called in for a meeting.

His accountant informed him that his adjusted taxable profits for 2013-14 were £10,400. His accountant also informed him that he could claim a reduced Annual Investment Allowance for the purchase of the van of £1,000 that would clear any tax liability for the year.

Bill was feeling good, no tax to pay. Then, the bad news…

As the initial claim for the van had been made in 2013-14 (due to purchase during March 2014) the balance not written off for tax purposes (£18,000 – £1,000) £17,000 would only be available in later tax years for an 18% writing down allowance. So for the tax year 2014-15 Bill could claim (£17,000 x 18%) £3,060 as a reduction of his profits for that year. Based on estimated profits of £30,000 this would produce a tax bill of approximately £3,400.

Then more bad news, Bill was advised that if he’d delayed the purchase of the van for three weeks, until after 5 April 2014, he could have written off the entire purchase price of the new van against his profits for 2014-15 and reduced his tax bill for that year to £400 instead of £3,400. With no claim for the van in the earlier tax year, his tax bill for 2013-14 would have been £200 and £400 for 2014-15. In total a cash flow saving of £2,800 (£3,400-£200-£400).

The moral of the story is – planning is important.

If you are considering any significant change in your business activities talk it over with us BEFORE you under take the change. The old cliché is supremely relevant: there really is no point in closing the stable door after the horse has bolted.