WHAT IS CAPITAL GAINS TAX?

Capital Gains TAX (CGT) is the tax you pay in the UK when disposing of capital assets. It is a separate tax to Income Tax.

WHO PAYS CAPITAL GAINS TAX IN THE UK?

UK residents are chargeable to CGT on disposal of any and all of their assets, regardless of where they are in the world.

Non-residents do not pay UK CGT with the exception of gains arising on property and land situated within the UK.

HOW IS A GAIN FOR CAPITAL GAINS TAX PURPOSES CALCULATED?

A gain arises when there is a disposal of a capital asset for a profit. The gain is measured as the difference between the sale proceeds and the acquisition price of an asset.

Allowance is given for certain costs of purchasing or selling the asset and for expenditure incurred on improving the asset during your ownership of it.

WHAT IS A DISPOSAL?

The concept of disposal comprises sales, gifts, loss, or destruction of assets.

ARE THERE ANY ASSETS EXEMPT FROM CAPITAL GAINS TAX ?

The principal assets falling out of CGT scope are betting, decorations for valour (i.e. medals), EIS/SEIS shares (see below), Gilts and qualifying corporate bonds, VCT shares (first £200,000) and some wasting chattels.

Gains that fall within the annual exempt amount are tax-free. Also, there is no CGT on gifts between spouses and civil partners.

WHAT RELIEFS ARE AVAILABLE ON THE DISPOSAL OF ASSETS?

The legislation rendered several types of reliefs, these are:

Deferral reliefs

Deferral reliefs allow the capital gain on an asset to be deferred to a later time. These are also known as ‘holder’ reliefs and the two main ones are the Enterprise Investment Scheme (EIS) and Gift holdover relief.

Relief on investments

Various investments are exempt from CGT if certain conditions are met; these are:

• Gains on ISAs are always free of tax.
• Shares in EIS/SEIS if held for a minimum period of three years.
• Shares in Venture Capital Trust (VCT) are free of CGT provided full income tax relief was given on the share purchase.
• Gilts & Qualifying Corporate Bonds if held by individuals.

Relief for disposal of residential property

Principal Private Residence Relief is available to taxpayers disposing of their only or primary residence. PPR relief may exempt all or part of the gain arising.

There’s no relief from CGT for buy-to-let or second homes. A measure of relief (Lettings Relief) is available to landlords who let out part of their principal residence and shares occupancy with a tenant.

Relief for business owners and business assets

There are three very valuable reliefs available to business owners selling some or all of their business or business assets used in the trade.

These are available when disposing of a business in which you are a main owner or investor, or where you re-invest proceeds in another business asset.

Relief for gifts to charities

There’s no CGT payable where assets are gifted to a charity. These gifts are on a no loss/no gain basis, similar to a transfer between spouses.

For assistance with your tax affairs, get in touch.