Capital gains Tax

OVERVIEW

If you sell an asset at a profit, you could have a capital gains tax (CGT) liability. If so, the net gain above the exempt amount is taxable at 20% if you are a higher rate taxpayer (28% on property sales) and 10% if your total income including the gain is within the basic rate band (18% on property gains) (2017). The resulting tax liability has to be paid by the 31 January following the tax year of sale (eg a sale in the year to 5 April 2017 means any CGT is due by 31 January 2018). Not all assets are liable to CGT, however:

MAIN EXEMPTIONS

Your own home (only one- second homes donít qualify)
Private cars
Damages and compensation for any wrong or injury suffered by you as an individual
Chattels (antiques, paintings, furniture etc..) sold for not more than £6,000
Personal decorations for valour or gallantry
Many UK government securities
Foreign currency bought for your personal use outside the UK
Works of art and other types of National Heritage property
Shares in a Venture Capital Trust, if sold by the original subscriber, and the company remains a VCT at the time of sale
Gifts to husbands, wives, civil partners or spouses
The first £11,300 (2017) of gains annually

ANNUAL EXEMPTION

Each person has a separate annual exemption so it is possible for married couples to get gains of £22,600 [2017] tax-free by transferring ownership of the asset to be sold so that each owns half before the sale, as gifts between spouses do not attract CGT. This unfortunately doesnít apply to unmarried couples, but marrying for the sake of the capital gains tax exemption may be a little extreme!

It may be worth selling an asset with an in-built gain just before the end of the tax year so as to use up the annual exemption, and then repurchase it straight away. This should not be attempted without seeking advice from a tax advisor as there are pitfalls for the unwary! Quoted shares, for instance cannot be repurchased by the same person, but a spouse can repurchase the same shares. (this is called a bed & breakfast arrangement).

INDEXATION RELIEF

This started in March 1982 and stopped for individuals in April 1998. If you owned an asset between those dates your cost is increased by the movement in the retail prices index between the date of purchase (or March 1982 if it was owned at that date) and the date of sale. Over the complete period March 1982 to April 1998 the RPI increase was 104.7%. This is a way of ensuring that you do not pay CGT on gains solely attributable to inflation.

ROLLOVER RELIEF

This is a relief for businesses which defers CGT on the sale of most business assets provided you reinvest at least the full sale proceeds into another business asset bought between 12 months before the sale and three years afterwards. The assets must be used in your business and you must be trading when you sell them. If you operate a business as a limited company, note that your shares in the company do NOT qualify for roll-over relief, although other reliefs may be available. Ask for advice before selling.

ENTREPRENEURS RELIEF

This is a relief on the sale of a business or business assets after a sale, which have been owned for more than a year. It reduces the chargeable gain by 4/9.

This is by no means an exhaustive treatment of Capital Gains Tax and I would recommend that you seek professional advice BEFORE entering into what could be a costly transaction!




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