Timely Capital Gains Tax planning


Catherine Vickery, Tax Manager, Exeter


With the end of the tax year fast approaching now is the time to consider whether you have made any gains in the year which will be liable to Capital Gains Tax (CGT) and what you might still be able to do to minimise your tax liability. With CGT chargeable at up to 28% there can be a significant amount of tax at stake.


Each individual has a CGT Annual Exemption of £10,600 for the current tax year, meaning that the first £10,600 of gains is exempt from CGT. With relatively simple planning ahead of a gain arising, maximum use can be made of these exemptions. For example, by ‘sharing’ the gain with a spouse and/or by splitting a disposal over two tax years perhaps total relief of £42,400 (4x Annual Exemptions) could be achieved. Capital losses brought forward may also be offset against current year gains.


Gains made on qualifying business assets can of course be ‘rolled over’ into replacement assets purchased up to one year before or within three years following the gain being realised. With other assets Rollover Relief is not possible however.


Having made a gain, after utilising the Annual Exemption and any brought forward capital losses, tax may be saved via realising other losses in the same tax year. This is particularly relevant for Milk Link producers, where monies should now have been received in respect of the Milk Link/Arla amba transaction. In this case, a substantial proportion of the monies received under the terms of the transaction may be chargeable to CGT and not qualify for Rollover Relief. If there are a sufficient existing number of partners in the business with little in the way of other gains in the year, the gain may be relieved entirely by the total of the partners’ Annual Exemptions. However, where this is not the case, some or all of the gain could be chargeable to CGT at up to 28%!


Many Milk Link producers are likely to be carrying a significant amount of Milk Quota, which historically may have cost thousands of pounds to acquire.


Values in more recent times have fallen significantly and is now worth in the region of just 0.10p/litre (i.e. 1.5m litres of Quota is worth just £1,500).


Realising a significant capital loss in the same year as a capital gain can potentially reduce the CGT liability on Milk Link monies and other gains to £nil. Timing is key however – the loss must be realised before 5 April 2013 and in the case of Milk Quota, it cannot be repurchased within 31 days. Of course being without Quota at the end of March can cause difficulties with milk buyers and there is more likely to be difficulty arranging the necessary transactions the closer we get to the end of the tax year, with more people looking to realise their losses.


Any ‘excess’ loss above that which can be used may be carried forward for use against future gains and the costs of arranging the necessary transactions can also be treated as a capital loss for immediate use or carry forward. We therefore suggest that where this is relevant, Milk Quota losses are fully realised – i.e. all Quota is sold with replacement Quota being purchased at least 31 days later.


While HMRC may accept a ‘Negligible Value Claim’ where an asset is deemed to have ‘negligible value’, whereby they allow such losses to be crystallised without the Quota being disposed of in this manner, it cannot be guaranteed. HMRC have not confirmed that Milk Quota can be classified as ‘negligible value’, and we would only advise this approach as a last resort.


Of course the nature of a capital gain might be such that other reliefs can be applied to mitigate the tax or reduce the effective tax rate, such as Principal Private Residence Relief, Holdover Relief, and Entrepreneurs’ Relief. Appropriate planning ahead of making a disposal will frequently reduce the CGT, often to a significant extent. It is usually difficult to reduce the tax once the asset has been sold, so it is vital to take advice in the early stages of planning a sale to maximise tax savings.


If you are a Milk Link producer or are considering capital disposals of any sort, we would recommend you get in touch with us as early as possible to consider all options to save CGT.


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