What is Capital gains tax? Capital gains tax rates

Capital Gains Tax (CGT)

 

Capital Gains Tax (CGT) is a tax on gains made on disposing of capital assets.  Such as shares, selling your business, and property. However, your main home is not ordinarily subject to CGT. The first £11,100 of gains you make in a year are exempt from tax. This is known as your annual exemption.

 

How a Capital Gain occurs

 

A capital gain occurs when the value of an asset at the date it is to be disposed of is higher than when it was obtained. An asset can be disposed of either by sale or by gift. If you give away an asset in an uncommercial transaction, the market value will replace any actual consideration paid.

 

 

For assets that are acquired before 31 March 1982, the cost is usually considered to be the value on that day, although the actual price can come in handy in some circumstances.

 

 

The following also reduce the amount of the chargeable gain.

 

 

  • Incidental costs of acquisition;
  • Expenditure to enhance the value of the asset;
  • Incidental charges of disposal; and
  • Tax reliefs and allowances

 

 Capital Gains Tax Guide

 

 

Capital Gains Tax (CGT) applies when chargeable assets are discarded and is applicable to individuals and trustees but not to private companies, although private companies do pay Corporation Tax on the gains that they make.

 

 

Chargeable assets include all forms of the property unless it is specifically exempt. The main assets it tends to apply to our land and buildings, shares, and business assets, including goodwill. CGT can be very complicated, and the rules are far more detailed than can be explained in this brief summary.

 

How a Capital Gain occurs

 

A capital gain occurs when the value of an asset at the date it is to be disposed of is higher than when it was obtained. An asset can be disposed of either by sale or by gift. If you give away an asset in an uncommercial transaction, the market value will replace any actual consideration paid.

 

 

For assets that are acquired before 31 March 1982, the cost is usually considered to be the value on that day, although the actual price can come in handy in some circumstances.

 

 

The following also reduce the amount of the chargeable gain. Incidental costs of acquisition;

 

 

  • Expenditure to enhance the value of the asset;
  • Incidental costs of disposal; and
  • Tax reliefs and allowances (see below).

 

Rate of Tax

 

CGT is charged at the rate of 20%, where the total taxable gains and income are above the income tax basic rate band. Below that limit, the price is 10%. For residential property (that does not qualify for private residence relief) and carried interest, CGT is charged at 28% gains above the basic rate band and 18% below this limit. For trustees and personal representatives of deceased persons, the rate is 20% (28% for the disposal of the residential property).

 

Rate of Tax

 

Capital gains are taxed at a higher rate of 20% (28% for residential property and carried interest) for benefits where total taxable gains and income are above the income tax basic rate band of£33,500. Below that, 10% (18% for residential property and carried interest) rate is applied.

 

 

There are various reliefs available that can reduce this. Most of the legislation regarding capital gains tax is all about the exemptions and how to avoid it, so you often find there are ways around it or ways to lessen its impact.

 

Tax Reliefs

 

There are several different tax reliefs which can reduce the chargeable gain, including.

 

 

  • Rollover/holdover relief on replacement of business assets – allowing you to defer the CGT on a gain of a business asset where it is matching with a replacement of a new business asset in the period commencing one year before and ending three years after the disposal.
  • Business incorporation relief available when you transfer your business into a limited company in exchange for shares.
  • Holdover gift relief – on some gifts of business assets or gifts made into trusts mean the tax does not become payable until the person or trustee who receives the charity disposes of it.
  • Entrepreneurs’ relief – for disposals after 5 April 2008. This allows the disposition of a material part or all of your business to have the CGT rate reduced to 10%. There is a lifetime limit which from 6 April 2011 is £10million.

 

in General InformationLandlordsMonthly Tax Q&A Tags: Capital gains taxCGTCGT rate UK

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