Capital Gains Tax (CGT) applies when chargeable assets are disposed of, and is applicable to individuals and trustees but not to Limited Companies. It is worth noting though that Limited Companies do pay Corporation Tax on the gains they make.
Chargeable assets includes all forms of property unless it is specifically exempt. The main assets it tends to apply to are land and buildings, shares and business assets; including goodwill.
Capital Gains Tax (CGT) can be very complex, and the rules are far too detailed to be explained in this brief blog post, so for more help and/or advice, please use our free Ask an Accountant service, or click here to book a free face to face meeting with us.
How A Capital Gain Occurs
A capital gain occurs when the value of an asset at the date it is disposed of is higher than when it was first acquired. An asset can be disposed of either by sale of by gift. If you give away an asset in an uncommercial transaction, the market value will replace any actual consideration paid.
For assets acquired before 31 March 1982, the cost is usually taken to be the value on that day, although actual cost can be used in some circumstances.
The following can reduce the amount of the chargeable gain...
- Incidental costs of acquisition
- Expenditure to engance the value of the asset
- Incidental costs of disposal, and
- Tax reliefs and allowances (see below)
Rates of Capital Gains Tax (CGT) 2013/14
For any taxable gains up to £32,010, the effective rate of Capital Gains Tax is 18%.
For taxable gains over £32,011, the effective rate of Capital Gains Tax is 28%.
The annual exemption for an individual is £10,900.
The annual exemption for most trustees is £5,450.
For Entrepreneur's Relief 2013/14, qualifying gains will be taxed at 10%. Claims may be made on more than one occasion, up to a 'lifetime' total of £10 million.
1. Capital gains of all trusts for 2013/14 are taxed at the rate of 28%. Where there are several trusts created by the same settlor, the annual exemption is divided equally between them, subject to a minimum exemption of £1,090 for each trust.
2. Transfers between husband and wife or civil partners living together are generally exempt.
Capital Gains Tax Relief
There are more tax reliefs related to Capital Gains Tax, including Entrepreneur's Relief, which we mentioned above. If you would like to learn more about how to reduce your Capital Gains Tax liability, please click here to book a free face to face consultation.