Office (01223) 213243
Fax (01223) 213243

Capital gains tax

The subject of Capital Gains Tax is another complex area. Her Majesty’s Revenue & Customs have published two hefty manuals that provide guidance and their interpretation of the legislation. Some of the matters such as Taper Relief are very involved and are the subject of several books being published on that aspect alone. Yet the introduction of Taper Relief was supposed to simplify matters.

It is not possible to cover all of the aspects of Capital Gains Tax here and so the following comments are merely to illustrate some of the key points involved.

Capital Gains Tax is a tax on the gain-this is the increase in value. Normally you only have to pay CGT on the disposal of an asset. The usual method of disposal is when you sell the asset although a gift of an asset can also be regarded as a disposal.

If you inherit an asset it is acquired from the Estate-your acquisition date is the date of death of the person who died and the acquisition cost is the market value at the time of the death.

Transfers of assets between spouses are not usually chargeable as these are treated on a no gain/no loss basis. The transferee takes on the original base cost and date of acquisition.

There is no CGT position should you gift an asset to a registered charity. Most sorts of assets are chargeable to CGT when you dispose of them apart from certain assets that are specifically exempt. The most common chargeable are:

● Shares in a company and unit trusts

● Land & buildings

● Higher value jewellery, paintings, antiques and other personal effects

Examples of assets that are exempt:

●Your private car

●Cash held in sterling

●Foreign currency held for your own or family’s personal use

●Jewellery, paintings, antiques and other personal effects that are individually worth less than £6000

●Savings Certificates, Premium Bonds and British Savings  Bonds

●UK Government Stocks (Gilts)

●Assets held in ISAs & PEPs

●Betting, lottery or pools winnings

●Personal Injury compensation

Your Private Residence

You will not have to pay CGT on the gain from selling your home if the following conditions are met:

●It was your only home throughout the period that you owned the property

●You did actually use it as your home for all of the time that you owned the property

●The house and garden do not exceed half a hectare ( approx. 1.25 acres)

Residence/Non Residence Issues

If you are resident and ordinarily resident in the UK you are liable to CGT on your worldwide assets and gains. If you are not resident or ordinarily resident then generally you are not liable but there are some exceptions-gains on assets used to carry on a trade in the UK.

If you are resident and ordinarily resident but not domiciled in the UK then you are only liable to CGT on the overseas assets to the extent that the gain is remitted here. If the proceeds are left offshore then there is no liability.

You also need to be careful where you have sold assets whilst abroad for a short time. You can be liable in the situation where your period of non residence is less than 5 years and you owned the assets before you left the country. You would be caught if you were UK resident for at least 4 out of 7 years prior to your departure.

CGT is charged on all chargeable gains less allowable losses of the same tax year. You can then use losses carried forward from a previous tax year to the extent of reducing your gain to an amount equal to the current year annual exemption.

The net taxable gain is charged at rates of 10%, 20% or 40%. Although it is calculated separately from income tax, it is calculated by treating the taxable gains as the top slice of income. Trustees and personal representatives are chargeable at the rate of 40%.

The tax is normally payable by 31st January following the end of the relevant tax year but in certain circumstances you can apply for the tax to be paid over an extended period.

In certain circumstances the actual disposal proceeds are replaced by the market value of the asset most notably in the case of disposals between connected persons. You are connected with your spouse, close relatives (e.g. brothers, sisters and lineal descendants) and those relatives’ spouses.

Finally please remember that if you think you are liable to CGT on the sale of an asset and you do not normally complete a self assessment tax return then you must notify HMRC by the 5th October following the end of the relevant tax year. Otherwise HMRC may look to charge you interest and a penalty for late notification.

This information is for general guidance only. You should always seek professional advice based on your own personal circumstances.