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| CGT is a tax on capital 'gains'. If when you sell or give away an asset it has increased in value, you may be taxable on the 'gain' (profit). This doesn't apply when you sell personal belongings worth £6,000 or less or, in most cases your main home.
When is CGT Payable?
When you sell, give away, exchange or cease to own an asset or part of an asset
When you receive money from an asset, or part of an asset for example compensation for a damaged asset
There are some assets which you do not have to pay CGT on:
Car
Main home (provided certain conditions are met)
ISA's or the old PEP's
UK Government gilts (bonds)
Personal belongings worth £6000 or less when sold
Betting, lottery or pools winnings
Money forming part of your income for tax purposes
Main Points:
If you are married/in a civil partnership and living together assets can be transferred between the partners/spouses without having to pay CHT.
You must be aware of your CGT responsibilities when giving assets to others or your children; or selling them cheaply.
If a loss is made you may be able to make a claim to deduct the loss from other gains, but only if the asset is normally subject to CGT.
If somebody dies and leaves assets to their beneficiaries there is no CGT to pay in this instance, however if the asset is later disposed of by the beneficiary then the CGT they have to pay will be based on the difference between the market value at the time of death and the value at the time of disposal.
How it is Calculated?
CGT is worked out for each tax year (06 April - 05 April following year)
It is charged on your total taxable gains after taking into account any costs or reliefs that can reduce or defer gains, allowable losses you have made on assets normally subject to CGT and the annual exempt amount (AEA) which is ٧,200 per person for the tax year 2007/08.
The amount of CGT you pay depends on your overall income. Your total taxable gains are added to your taxable income for the year and treated as the top part of that total. The gains are then charged to CGT at the following rates (2007-2008 tax year):
10% if they fall below the starting rate limit for income tax (£2230)
20% if they fall between start rate and basic rate for income tax (£2231 - £34,600)
40% if they fall above the basic rate limit for income tax (£34,601+)
For Example
| Factors
| Example A
| Example B
| | Annual Income
| £25,000
| £35,000
| | Less Personal Allowance
| £9,200
| £9,200
| | Taxable Income
| £15,800
| £25,800
| | Gain Chargeable (after reliefs)
| £10,000
| £10,000
| | Taxable Income and Gains
| £25,800
| £35,800
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For further information on Capital Gains Tax see HERE
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