Whats covered by Capital Gains Tax?
Capital Gains Tax assets covered: Houses other than your personal home, antiques, shares & garden land sales.
Disposing of assets, means selling it, gifting it, exchanging or losing it. Tax is payable on the gain made between the selling price and the value when acquired.
Assets not covered (Tax-free assets): Foreign currency for holidays, your home, personal belongings less than £6,000, personal items not expected to last 50 years (machinery, electronics or computers, cash held in sterling (UK residents), private cars, UK Gilts, savings certificates, premium bonds, shares under the Enterprise Investment Scheme, shares held in ISAs and PEPs, shares in qualifying venture capital trusts & betting & lottery winnings.
If the asset was given to you, the market value at that time will be used. If you give away or lose an asset, the market price at that time will be used instead of the selling price. If an asset was inherited, the market value at the time of the previous person's death will be used in the calculation.
Transferring assets!
Assets can be transferred between husband and wife if they are living together, without attracting any Capital Gains Tax. Use this mechanism to reduce CGT in a tax year.
Assets given to a spouse and later sold, the value of the asset when it was first acquired is used to work out the Capital Gains Tax (CGT). Assets given to children or anyone else will over a certain value be subject to CGT.
How to reduce your CGT bill !
Once you have worked out the chargeable gain on any assets you may be able to reduce it by deducting any expenses incurred in the course of buying, improving and disposing of it, for instance, legal fees, stamp duty or the cost of an extension or other enhancement to a property. However costs set against income tax cannot be used.
In addition, if you find you have made capital losses on the disposal of some assets that normally attract CGT in the course of a tax year, these can be offset against any gains made on others, to reduce the total chargeable amount further.
Deductions and reliefs
Annual exemption = £8,500 2005/2006 tax year. ie. you can reduce your CGT by £8,500
Taper Relief introduced in April 1998.
Taper relief can be used to lower your CGT bill. The longer you own the asset, the lower your CGT. Assets held before April 1998, indexation allowance is used to calculate a reduction.
The chargeable gain on non-business assets are reduced by 5% after you have owned the asset for at least three years. After ten years, your taxable gain has been reduced by 40%.
Shareholdings in unquoted trading companies (see AIM) and shares held by employees or by shareholders with at least 5% of voting rights in quoted trading companies receive taper relief at 50% for at least one years ownership and 75% after two years.
Another kind of relief is Holdover Relief - where you can postpone chargeable gains where gifting certain types of asset until they are later sold on.
Capital Gains Tax = Total chargeable gains on assets in tax year - capital losses incurred in tax year - Annual Exemption - (Taper Relief or Indexation Allowance)
Further reading tick list
Further read for reducing the amount of capital gains tax:-
Claiming all valid tax deductions:
- Professional fees,
- Enhancement expenditure,
- Indexation Allowance,
- Taper Relief,
- Retirement Relief,
- Principal Private Residence Relief,
- Lettings Relief,
- Gift Relief,
Asset Review:
- Nominate the right house as your principal residence if you have more than one house,
- Becoming non-domiciled, for UK capital gains tax purposes,
- Investigate the use of trusts or pension funds as a capital gains tax planning device,
- Considering changing the ownership of the asset between spouses,
- Infleuencing the timing of the sale
- Delaying payment of tax by reinvesting the proceeds and claiming Rollover relief, Holdover relief & Deferral Relief.
Disclaimer: Always seek independent advice for any tax planning issues. Structured Internet Ltd cannot be held responsible for any costs incurred, transactions arising from or consequences of any advice listed here or followed as a result of visiting any site being linked from this website.
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