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Capital Gains Tax

Capital Gains Tax (CGT) is a tax on profit made when you sell assets or investments. These can be anything from holiday homes to works of art, shares or the goodwill of a business.

If you sell or transfer these assets to someone else for more than you paid for them, you may have made a capital gain. If you give assets away to anyone close to you (apart from your spouse) when they are worth more than you paid for them, for tax purposes you may have made a capital gain.

Allowances

As an individual, you can make a capital gain of up to £8,800 in the 2006/07 tax year before you are liable to pay CGT (up to £8,500 for 2005/06). Any gain above this limit is charged at different rates depending on your circumstances (though not more than the top rate of 40%).

The annual exemption for trusts is £4,400 for 2006/07 (£4,250 for 2005/06).

Calculations

Generally, CGT is payable at your highest rate of tax.

The gain itself may be reduced by taper relief, the rate of which depends on

• how long the asset has been held, and
• whether or not it is a "business asset".

Calculations of CGT liabilities can become confusing. If you make losses on your investments these can usually be deducted from your gains before taper relief. It is generally advantageous to first deduct losses from gains which have been tapered least.

Losses left over can then be carried forward to offset any capital gains in later years.

Payments

Tax due on capital gains made in 2004/05 should have been paid by 31 January 2006 as part of any balancing payment calculated through the self assessment system.

Any CGT due for 2005/06 will be payable on or before 31 January 2007.

Exemptions

The gain from the sale of your main home does not generally incur a charge to CGT unless it has been used for business purposes or you have had periods of non-residence which exceed certain levels.

Certain costs can be deducted for Capital Gains Tax (CGT) purposes such as professional costs incurred in connection with the acquisition and sale (e.g. stamp duty, legal fees, estate agents' fees, surveyors' fees etc).

There are many potential pitfalls to overcome but with careful planning it is often possible to take advantage of the CGT exemptions for principal private residence.

An annual CGT exemption of £8,800 is currently available. Both husband and wife are entitled to this, so if the property is jointly owned the allowance is in effect doubled. Non-UK resident landlords may be exempt from paying CGT.

Even where a gain has been established it might be possible to defer it by reinvesting in certain shares. Proper professional advice should always be sought in connection with these complex schemes.

Reliefs

Reliefs may be available in certain circumstances. For example, on the gift of business assets or on the gift of "assets" into certain types of trust, the gain may be "held over" until the assets are disposed of by the donee.

Please note: This guide is intended to provide basic information only. Where specific advice is required, we recommend that you seek proper professional help; either from Just Tax or other suitably qualified person or practice.