Capital Gains Tax (CGT)
Capital Gains Tax is exactly that - a tax on capital 'gains'. If when you sell or give away an asset it has increased in value, you may be taxable on the 'gain' (profit).
You may have to pay CGT if, for example, you:
- sell, give away, exchange or otherwise dispose of (cease to own) an asset or part of an asset
- receive money from an asset - for example compensation for a damaged asset
You don't have to pay CGT on:
- your car
- your main home, provided certain conditions are met
- ISAs or PEPs
- UK Government gilts (bonds)
- personal belongings worth £6,000 or less when you sell them
- betting, lottery or pools winnings
- money which forms part of your income for income tax purposes
These are some points to bear in mind:
- if you are married or in a civil partnership and living together you can transfer assets to your husband, wife or civil partner without having to pay CGT
- you can't give assets to your children or others or sell them assets cheaply without having to consider CGT
- if you make a loss you may be able to make a claim to deduct that loss from other gains; but only if the asset normally attracts CGT - thus you cannot set a loss on selling your car against gains from disposing of other assets
- if someone dies and leaves their belongings to their beneficiaries, there is no CGT to pay at that time - however if an asset is later disposed of by a beneficiary, any CGT they may have to pay will be based on the difference between the market value at the time of death and the value at the time of disposal
CGT is worked out for each tax year (which runs from 6 April one year to 5 April the following year). It is charged on the total of your taxable gains, after taking into account:
- certain costs and reliefs that can reduce or defer gains
- allowable losses you have made on assets to which normally CGT applies
- your annual exempt (tax-free) amount (the AEA) for every individual in 2011-2012 is £10,600.
CGT rates
How much CGT you pay depends on your overall income. Your total taxable gains are added to your taxable income for the year and treated as the top part of that total. The gains are then charged to CGT at the following rates (20011 -2012 tax year):
Annual exemption allowance £10,600
There are two rates of CGT 18% up to the basic rate limit and 28% therafter. Entrepeneurs relief is avaialble up to £10 miilion and taxed at 10%. The rate that applies to trusts and estates is a single rate of 28%, the 18.5% rate only applies to disposals made on or before 22/06/2010. The annual exemption for trusts is half the rate applicable to individuals ie £5,300.
the financial services authority does not regulate CGT planning
If you think you may have a Capital Gains Tax Liability and would like to speak to someone, then please call us on 0191 5214408.