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 2009-10 is £10,100.
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 (2009-2010 tax year):
Annual exemption allowance £10,100
For 2009-10 there is a single rate of CGT of 18% for individuals, trustees, and personal representatives on taxable gains.
If you think you may have a Capital Tax Liability and would like to speak to someone, then please call us on 0191 5214408.