Which Gains Qualify For Relief?
The relief may apply to gains arising on the disposal of:
- the whole, or part, of a trading business that is carried on by the individual, either alone or in partnership;
- shares in a trading company, or holding company of a trading group, provided that the individual holds broadly 5% of the shares and voting rights and has been an officer or employee of the company;
- assets used by a business or a company where the trade has ceased; and
- assets used in a partnership or by a company but owned by an individual if the assets disposed of are 'associated' with the withdrawal of the individual from participation in the partnership or the company.
A trading business includes professions but only includes a property business if it is a ‘furnished holiday lettings’ business. 'Trading company' has the same meaning as applied for taper relief.
Similar rules operate where the trustees of a settlement make a disposal of business assets and there is an individual who is a qualifying beneficiary. There are however a number of specific conditions which need to be met to treat the individual as a qualifying beneficiary.
ER will have to be claimed by the individual or, in the case of a disposal of trust business assets, jointly by the trustees and the qualifying beneficiary.
Where a claim is made, gains and losses of all relevant disposals are to be aggregated and any remaining ‘net gain’ reduced by 4/9ths. This rule applies to both individuals and trust gains in respect of qualifying beneficiaries. The maximum cumulative ‘net gain’ qualifying for the reduction cannot exceed £1m.
Example
William sells his shares in a trading company in 2008/09 and realises a gain of £460,000. He has been a director of the company and has owned 45% of the ordinary shares of the company (which gave him 45% of the voting rights) for six years. He therefore qualifies for ER on the disposal of his shares.
On making a claim, William's gain is reduced by 4/9ths, resulting in a chargeable gain of £255,555. Assuming William has no other gains or losses, after deducting the annual exemption of £9,600 he has a chargeable gain of £245,955. This amount is taxed at 18%, giving CGT due of £44,271. |
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