Capital gains tax

Tax rates and allowances

The annual exemption for 2021/2022 will remain at £12,300 and the Chancellor announced that the annual exemption will remain at this amount for the tax years 2021/22 to 2025/26.

No changes were announced to the rates of capital gains tax with the higher rate remaining at 20% and the basic rate at 10%. The 28% and 18% rates continue to apply to chargeable gains made on the disposals of residential property and the receipt of carried interest, however. The broader question of how carried interest should be taxed was not addressed in the Budget 2021 releases.

For a table of the main tax rates and allowances for 2021/2022, click here.

Gifts of business assets

The Chancellor's Budget on 3 March 2021 might be viewed by some as the gift that keeps on giving. But one aspect of the Budget offers no gifts to taxpayers in that it focuses instead on the tightening of the existing anti-avoidance rules regarding the gifting of capital assets.

The starting point under the capital gains tax rules is that gifts are treated as a disposal for tax purposes, with that disposal being made at market value. However, a special relief referred to as "gift hold-over relief" may be provided under sections 165 to 169G TCGA 1992. Under section 165(4) TCGA 1992, where the relief is available it results in the following outcomes:

• it relieves the donor from capital gains tax on its disposal of the asset; and
• it passes that gain on to the donee, who is able to deduct the gain from the base cost of the asset.

The policy paper released on 3 March 2021 states that Finance Bill 2021 will make an amendment to an anti-avoidance rule relating to gift hold-over relief, which currently prevents gift hold-over relief where the recipient of the gift is a company which is controlled by a person who is not tax resident in the United Kingdom and connected with the donor.

The existing anti-avoidance rule has been clarified to ensure that it also applies when it is the non-UK resident donor of the asset that controls the recipient company. This is to address an issue identified in the case of Reeves v HMRC.

The change is therefore a clarificatory one to ensure that the existing anti-avoidance provision can operate effectively. The result is that gift hold-over relief is now unavailable where a donor gifts an asset to a foreign-controlled company which is controlled either:

• by another non-UK resident with whom they are connected; or
• by the donor itself.