Capital Gains Tax Planning Tips & Advice. Part 2

In this series of articles, you'll find tax planning tools and advice in respect of steps you can take now to mitigate your tax liabilities. Capital Gains Tax (CGT) can significantly impact the return you make when selling investments, property or other valuable assets, but with careful planning, it’s possible to reduce or even eliminate the tax you pay.

In this second part our our Capital Gains Tax insights we have outlined a number of measures you may wish to consider. You can find our first post on Capital Gains Tax planning measures here: Capital Gains Tax Planning. Part 1

Negligible value claims

You can claim a capital loss on assets that have become worthless. If you’ve already realised gains above the exemption limit, consider realising assets standing at a capital loss.

For unquoted shares in a UK trading business, the loss may be offset against income. If Enterprise Investment Scheme (EIS) income tax relief was claimed on the shares, and has not been withdrawn, the capital loss equals the cost of the shares less the EIS income tax relief received.

EIS is a government-driven initiative designed to stimulate investment in early-stage businesses through venture capital. Investors can claim up to 30% income tax relief on EIS investments. The maximum investment that investors can claim relief on in a single tax year is £2 million (£1m for Knowledge Intensive (KI) investments and £1m for non KI investments), which amounts to £600,000 of income tax relief. Investors can get relief in the tax year money is invested or they can choose to treat some or all of the investment as having taken place in the previous year.

Tax planning tips: 

• Review your investments across all platforms and evaluate your overall position rather than treating each portfolio in isolation.
• Review old or worthless investments regularly and claim allowable losses. 
• Consider using share losses to offset income where eligible.

Payment dates

CGT is generally payable by 31 January following the end of the tax year of the disposal. Selling after 5 April can delay the tax payment by up to 12 months.

For UK residential property, a CGT Residential Property return must be submitted within 60 days of completion and the tax due must be paid within the same timeframe. This short timeline may necessitate valuation or historic record review.

Tax planning tip: 

• Selling assets post 5 April can defer the CGT payment for up to 12 months. 
• When selling residential property ensure you have all the information required to complete the CGT return on time. 

Investing for capital growth

Due to the difference between the income tax rate (up to 45%) and the CGT rate (up to 24%), investors may prefer growth-focused strategies over income generation to reduce tax liabilities.

Tax planning tip:

• Focus on capital appreciation investments where suitable, given the lower CGT rates compared to income tax.

Liquidations

Distributions made during a company liquidation are typically treated as capital proceeds and taxed accordingly. If the company’s assets are under £25,000, an informal process can be followed; otherwise, a formal liquidation is recommended to benefit from CGT treatment.

Anti-avoidance rules may apply to individuals who repeatedly liquidate companies engaged in similar activities.

Tax planning tip: 

• Choose a formal liquidation if assets exceed £25,000 to benefit from CGT treatment. Avoid repeated liquidations to prevent anti-avoidance issues.

LLP liquidation rules

From 30 October 2024, LLP members who contributed assets will be taxed on chargeable gains arising from those contributions when the LLP is liquidated and assets are distributed to the member or a connected party.

Tax planning tips: 

• Review contributions before liquidation to determine if CGT applies. 
• Consider tax-efficient restructuring before dissolving an LLP.

CGT reporting

Disposals made on or after 30 October 2024 must be calculated separately in the 2025 tax return due to mid-year CGT rate changes. Taxpayers should utilise reliefs and allowances strategically to minimise liability.

Tax planning tips: 

• Keep detailed records of disposal dates pre and post-30 October 2024 to apply correct rates in the 2025 return. 
• Use reliefs and losses strategically to lower overall tax.

Business Asset Disposal and Investors' Relief

From 6 April 2025, the rate for Business Asset Disposal Relief and Investors’ Relief rises to 14%, and to 18% from 6 April 2026. The lifetime limit for Investors’ Relief is reduced from £10 million to £1 million for disposals from 30 October 2024.

Tax planning tips: 

• Consider advancing disposals to benefit from lower relief rates. 
• Use the reliefs before thresholds tighten further.

Selling or exiting a business

Business owners exiting through liquidation will be affected by increased CGT, though Business Asset Disposal Relief remains advantageous. An external sale might benefit from the substantial shareholding exemption. 

A Management Buy Out is subject to increased CGT, whereas sales of shares to an Employee Ownership Trust remains CGT-free but has extended disqualifying event rules (from 1 to 4 years).

Succession planning should consider changes to inheritance tax, using structures like Family Buy Outs, Growth Shares or Family Investment Companies.

Tax planning tips: 

• Evaluate all exit options – from BADR and shareholding exemptions to Employee Ownership Trusts. 
• Plan succession early using Growth Shares or Family Investment Companies.

Employee Trust reforms

Reforms from 30 October 2024 aim to prevent abuse of Employee Ownership Trusts and Employee Benefit Trusts, maintaining their focus on employee ownership and reward.

Tax planning tip: 

• Ensure your trust structure complies with new rules from 30 October 2024 to maintain CGT advantages and avoid penalties.

As always, these articles provide an overview of the various measures available and no action should be taken without seeking professional advice.  At Ritchie Phillips, we pride ourselves on providing clear, pragmatic advice to help businesses, individuals and families. If you’d like to discuss any of the above, please get in touch.