Capital Gains Tax (CGT) affects both individuals and businesses the chances are that you are likely to be affected by CGT at some point.
Nicola Roby gives an overview of what you need to know where CGT is concerned.
CGT is payable when you ‘dispose’ of an item and profit from the sale. The amount you are liable for depends on your income and the asset in question.
These could be personal items worth more than £6,000, a second home, shares you own in a limited company, a painting or even fine wines.
For example, you purchase a buy to let property for £180,000 then sell it for £220,000 four years later. This leaves you with a profit of £40,000 before deducting the annual exemption, which is potentially liable for CGT.
It is possible however to minimise your tax bill through careful CGT planning and there are several reliefs available to help to do this.
How much CGT you pay depends on the income tax band in which you fall.
If you’re a basic rate taxpayer (earning up to £46,350 in tax year 2018/19) you will pay 10% CGT.
If you are a higher rate tax payer (earning between £46,351 and £150,000 in tax year 2018/19) you will pay 20% CGT.
There is also a surcharge of 8% which applies to gains relating to the sale of residential properties that are not your main home.
Every taxpayer in the UK can take advantage of an annual CGT exemption (£11,700 for tax year 2018/19), which means you won’t pay any tax on gains worth less than this amount.
Your taxable gains are calculated after deducting your annual CGT exemption and any capital losses you have incurred.
If you don’t use all your annual exemption, you cannot carry the unused amount into another tax year or transfer it to another person.
Sale of your main home is not subject to CGT as it qualifies for private residence relief. Other assets which are exempt include moveable possessions worth no more than £6,000; cars of any value; government stock and savings certificates; foreign currency for personal use and debts and most corporate bonds.
Any assets you give to charity are exempt from CGT.
There is also a general exemption from CGT for gifts between spouses or civil partners who are living together, but this doesn’t apply to gifts to other relatives.
So, for example if, if you give a property to your child, you will be taxed as if you are selling the property at market value.
Investments can of course make losses when sold, for example shares in a company which have gone down in value.
Such capital losses can be set against the capital gains you have made in the same tax year or they can be carried forward.
When you own assets or shares which become worthless, you can also claim that capital loss as if you had disposed of the assets or shares.
30 September 2019
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