Capital gains tax
This is, to put it simply, a tax on capital gains.
Capital gains tax (CGT) is levied at 10% and 20% (10% up to the limit of the basic rate income tax band, 20% above it) for the 2018/19 tax year.
Rates of 18% or 28% apply to disposals of residential property that do not qualify for private residence relief and the receipt of carried interest.
Everyone has an exemption of £11,700 for 2018/19. Used carefully, this exemption can ensure that you need never pay capital gains tax when you come to turn your capital savings into supplementary income, provided that your disposals are relatively low in value. This allowance cannot be carried forward if unused.
Pre March 1982 assets
These are to be valued at their 31 March 1982 value.
Post March 1982 assets
Valued at cost.
When you sell qualifying assets (i.e. a business) your first £10,000,000 of gains are taxed at a rate of 10%.
This is a lifetime limit and, for those who build and sell businesses on a serial basis, you can utilise part of this relief with each business sale until you have reached your limit.
Broadly speaking, if you sell, gift or otherwise dispose of any asset or property, unless such an asset or property is exempt from CGT, and make a profit on the sale or disposal compared to the price or value you acquired it for, you should assume that CGT might be applicable and seek advice.
Exemptions and reliefs
Exempt assets are free from CGT, whilst reliefs operate to reduce or eliminate a CGT liability in the event of the sale or disposal of certain types of assets, such as businesses. The relief applicable to most people is the Private Residence Relief for your main home. The sale of your home does not incur a CGT liability in most circumstances. If you have more than one house, we can advise you as to the best way to proceed.
Definition of disposal
There is no formal definition of disposal but, for everyday use, the two main events that are classed as disposals are the sale of an asset or the gift of an asset.
Gifts between spouses (living together) are not chargeable at the time of transfer, nor are gifts to certain charities. Most other gifts are chargeable, and it is important to take advice before making any significant gifts. For example passing a valuable heirloom to your child may result in a tax bill arising even though no money has changed hands.
The way in which tax charges (or tax relief, as appropriate) are applied depends upon individual circumstances. This information is based on our understanding of current HMRC rules and practice. Tax rules and allowances are not guaranteed and may change in the future.
The FCA does not regulate certain tax planning activities and services.
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