Capital Gains Tax on selling business asset (non-property)

janusdesign

I am a sole trader (e.g unincorporated) and have received multiple 6-figure offers for my main business domain name and so i'm trying to roughly work out the potential tax implications of such a sale.

my reading of the CGT rules is that if I were to sell the domain for say £250k, the CGT liability would be around £44k at most - possibly that could be lessened with Business Asset Disposal Relief, but that's a discussion for another day.

• is that 44k figure roughly correct ?
• is it true that I don't have to declare/pay the CGT until self-assessment, e.g after April 2021 ?
• will I need to pay income tax on the remaining £206k (i'm a 0% tax payer) ? (the only reference to this I found online was US-based, and the answer was no - so just trying to avoid any nasty surprises).

sadly, my accountant is in hospital, so my usual source for answers to questions like these is not currently available.

[Deleted User]

Not sure where £44000 comes from. I believe that the calculation is £250000 less capital gains allowance £12300 with the balance all at 10%. I make this around £23770.
Also  why would you pay tax on the amount after tax? 

The gain needs to be reported by 31st December 2021 and paid by 31st January 2022.

Jeremy535897

I suspect £44,000 is 18% of £250,000 less costs of sale, with no base cost. That rate I think is now only relevant to gains on the disposal of residential property within the basic rate band.

I think business asset disposal relief is only available for sole traders where the whole or part of the business is sold, rather than just a chargeable business asset? It is capped at £1 million for lifetime disposals of chargeable business assets. Whether the sale of the main domain name is an identifiable part of the business is a difficult one. The last time I looked at rules like these was in the eighties with the old retirement relief. There were a lot of difficult cases on whether the sale was part of a business or just a business asset. Plus ca change...

If I am right, depending on OP's income and other gains, the tax rate might be 20% rather than 10%, at least on most of the gain?

[Deleted User]

Jeremy535897 said:

I suspect £44,000 is 18% of £250,000 less costs of sale, with no base cost. That rate I think is now only relevant to gains on the disposal of residential property within the basic rate band.

I think business asset disposal relief is only available for sole traders where the whole or part of the business is sold, rather than just a chargeable business asset? It is capped at £1 million for lifetime disposals of chargeable business assets. Whether the sale of the main domain name is an identifiable part of the business is a difficult one. The last time I looked at rules like these was in the eighties with the old retirement relief. There were a lot of difficult cases on whether the sale was part of a business or just a business asset. Plus ca change...

If I am right, depending on OP's income and other gains, the tax rate might be 20% rather than 10%, at least on most of the gain?

I can only agree with you - business asset relief eligibility is for the current practitioners! Presumably those still practising will come along at some point.

Retirement relief - you must be as old as me!

Jeremy535897

First client tax return I did was 1975/76, although he was a couple of years in arrears.

[Deleted User]

Jeremy535897 said:

First client tax return I did was 1975/76, although he was a couple of years in arrears.

I started in the ‘Inland Revenue’ in 1982. So, my apologies, you are way older than me.😊

janusdesign

purdyoaten2 said:

Not sure where £44000 comes from. I believe that the calculation is £250000 less capital gains allowance £12300 with the balance all at 10%. I make this around £23770.

thanks for the reply.

the £44k figure comes from a couple of CGT calculators that both gave the same amount.

https://taxscouts.com/calculator/capital-gains-tax/?tax-year=2020-2021

https://www.uktaxcalculators.co.uk/tax-calculators/personal-tax-calculators/capital-gains-tax-calculator/

First £12,300 are tax-free.

£37,500 taxed at 10%: £3,750

£200,200 taxed at 20%: £40,040

if I could get BADR, then I think the whole amount, minus allowance, would be at 10% - so your £23k figure... a £20k saving.

purdyoaten2 said:

Also  why would you pay tax on the amount after tax?

logically I shouldn't - I was just trying to avoid any nasty surprises down the road... wasn't sure if it was ultimately classed as "income" and therefore liable.

purdyoaten2 said:

The gain needs to be reported by 31st December 2021 and paid by 31st January 2022.

that's good to know.

Jeremy535897 said:

I think business asset disposal relief is only available for sole traders where the whole or part of the business is sold, rather than just a chargeable business asset? It is capped at £1 million for lifetime disposals of chargeable business assets. Whether the sale of the main domain name is an identifiable part of the business is a difficult one.

from my reading, I don't think BADR would apply either - possibly if I closed the business and disposed of any other assets.

i'm no Jimmy Carr, but for the sake of £20k, i'm more than happy to keep investigating the idea.

Jeremy535897

i'm no Jimmy Carr, but for the sake of £20k, i'm more than happy to keep investigating the idea.

Why not indeed? There's lots of old case law that addresses this question. Start here (old name still used for the relief):

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg63950p

pchelpman

I have to agree when you say ..."from my reading, I don't think BADR would apply either - possibly if I closed the business and disposed of any other assets."
You may be able to claim BADR (formerly entrepreneurs’ relief) up to the lifetime limit of £1 million of the gain if the sale of the domain name is associated with the sale of your business. The rules for this tax relief are complex and your numbers are large. I would recommend you invest in getting specialist tax advice from a Chartered Tax Advisor.
There are other possible mitigation avenues you could look into such as CGT deferral relief when you reinvest the money into EIS companies' newly issued ordinary shares, subscribed for in cash. However, reinvestment is another matter for careful consideration. Reading your posts I feel you are the type of person who would tread carefully anyway.
Good luck with it all. I hope it goes well for you.

janusdesign

can I ask a follow up question on this - and maybe it's impossible to answer (or simple!) - but it has me pondering on my next step.

with CGT being under review and possible changes to be announced in the Autumn Budget in November, if I sell an asset now upon which CGT is liable, is the CGT amount due fixed at the day of sale, or could it be retrospectively changed later by HMRC ?

my concern would be to sell it now, think I was paying 20% (or similar), but as I wouldn't declare it until this year's tax return is submitted next year, find that the rate has been changed by the budget, and suddenly i'm paying a higher amount than anticipated (of course it could be lower, but let's not expect that).

Jeremy535897

Retrospective tax increases are not impossible, but are very unusual, outside the tax avoidance arena.