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CGT rates

Since April 2016 the two main rates of capital gains tax (CGT) have been 10%, if your taxable income plus gains for the year fall within the basic rate band, and 20% if your income and gains are greater.

Where you sell your business, and meet the necessary conditions, a special 10% entrepreneurs’ relief (ER) rate applies regardless of how much your income and gains are. Before CGT starts to apply, every individual adult or child is entitled an exempt amount; for 2019/20 this is £12,000.

No gain, no loss

Special rules apply to transfers of assets between spouses. If one spouse gives assets to the other it’s treated as if they sold them to their spouse at the price equal to their cost, this is called a “no-gain, no-loss” transaction. If later the spouse who received the assets sells them for more than they cost the first spouse, they’ll make a capital gain, but they can use their annual exemption to lower or eliminate any CGT.

If you’re married or have a civil partner, you can use the no-gain, no-loss rule to save tax even where the rate of CGT you would pay is the lowest possible, i.e. where the ER rate applies.

Increasing the tax saving

The no-gain, no-loss rule doesn’t apply to gifts of assets to anyone other than your spouse or civil partner. Gifts of your company shares to children are treated as sales at their full value.

There is a legitimate way around this. You can claim CGT holdover relief. The effect of this is similar to giving shares to your wife. The gain is deferred (held over) until the children sell their shares. A holdover claim must be made jointly and usually anti-avoidance rules make it ineffective if the children are minors.

Before signing the sale contract, transfer shares to your spouse. This shifts part of the gain to them, against which they can use their annual exemption. You can achieve a similar result by transferring shares to family members, but this requires you to make a claim for “holdover relief”.