Capital gains tax retirement relief is a relief from capital gains tax (CGT) available to individuals who dispose of all or part of the qualifying assets of their business.
The qualifying assets could, for example, include business assets used in a trade (such as a premises, goodwill or farming land) or family company shares.
CGT retirement relief can potentially reduce a CGT tax bill on the sale of such assets to zero, provided that the sale satisfies certain conditions as follows:-
- The following qualifying conditions apply:
- The disposal must be made by an individual (and not for example by a company).
- The individual must be 55 or over. The amount of relief is restricted if the individual is older than 66.
- The disposal must be of qualifying assets (e.g. business assets or family company shares).
- The qualifying assets must have been held for a minimum period immediately prior to the disposal normally 10 years.
When the disposal is of family company shares the individual must have been a working director for a minimum of 10 years up to the date of disposal, 5 of which were on a full time basis.
A company is defined as a family company when an individual holds either:
A minimum of 25% of the voting rights of the company, or
A minimum of 10% of the voting rights and his family, including him, holds a minimum of 75% of the voting rights of the company.
It’s very important to note that retirement (in the normal sense of the word) is not actually a condition of the relief. Therefore the term “CGT retirement relief” is somewhat misleading. In fact, an individual could sell qualifying assets (e.g. the assets of his business or the shares of his family company) and claim CGT retirement relief (provided they fulfil the conditions) and then still continue to be actively involved in the business or remain a shareholder or director of the company.
An individual may sell an asset (e.g. land, machinery or plant) that is owned by him, but actually used by the family company. In this case, the sale of the asset can also qualify for CGT retirement relief provided it has been owned by the individual for the minimum period and is sold along with his shares. The assets would need to be sold at the same time and to the same person as the shares.
An example of where this situation might arise would be where a shareholder or director rented a business premises to their company, and they are now selling their shares along with the building to a third party