A capital gain from disposing of an asset is subject to capital gains tax (CGT)
If you sell something (an asset) for more than you paid for it then the result is a capital gain, which is subject to capital gains tax (CGT). Costs of purchase and disposal, along with improvement costs, are usually deducted to reduce the gain. For companies, these costs are indexed to account for inflation since the costs were incurred.
There are numerous reliefs available, which can reduce the amount of gain charged to CGT, change the rate of CGT payable or postpone the date that the CGT payment is made. These are further discussed here.
Transactions between connected parties have special rules so that the transaction is deemed to occur at market value, preventing artificially high or low prices being charged to tax.
In some cases you’re treated as if you’ve disposed of an asset. For example, where a personal possession has been destroyed and you’ve received compensation for the loss (e.g.insurance).
The gain or loss on each asset disposal are generally calculated separately, and these are all added together to give a total gain or loss for the tax year. A net gain is then subject to CGT, and a net loss is carried forward to reduce any future gains. Any unrelieved capital losses brought forward from previous years can be used to reduce a current year net gain.
Individual taxpayers are entitled to an annual allowance (£11,100 for 2015/16) each year; only gains in excess of this allowance are chargeable to CGT. For trusts, the annual allowance is halved (£5,550 for 2015/16), and there is no such allowance for companies.
CGT applies to individuals and trusts: The rates of CGT for taxpayers are 18% for any unused basic rate tax band, and 28% thereafter; trusts simply pay the 28% CGT rate. Companies do not actually pay CGT; instead, their chargeable gains are added to their taxable profits and charged to corporation tax (currently 20%), but the gains still need to be extracted from the company by the shareholders, which will likely incur further tax charges.
CGT is generally only chargeable on taxpayers that are UK resident, but there are anti-avoidance rules for temporary non-residents (where they are non-resident for less than 5 years), and UK residential property is subject to CGT even for non-residents from April 2015.
Capital gains are reported on the relevant self-assessment tax return (SATR) for the entity selling the asset (Personal tax return for individuals, CT600 for companies etc.) and the payment date for the tax due is the same as for the other tax on that return (31 January following the tax year for individuals, 9 months and 1 day after the accounting period end for companies).
If you would like more information regarding capital gains, you need help with completing the self-assessment procedure or if you would like to know more about the reliefs that are available, please contact Tax Innovations on 01962 856 990 or firstname.lastname@example.org.
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