CAPITAL GAINS TAX
Chargeable Person?
- Individuals
- Personal representatives, when they dispose of the assets of the deceased person;
- Partners, when the partners dispose of a chargeable asset. Each partner is charged
separately for their proportion of the gain; and
- Trustees, on the disposal of a chargeable asset from a trust fund
Companies do not pay capital gains tax, they pay corporation tax.
Charities are exempt from paying CGT.
Chargeable Asset?
Under TCGA 1992, a chargeable asset includes all forms of property, including debts,
options and incorporeal property (e.g. a patent or a lease, a legal right in property having no
physical existence).
It does not include sterling.
Steps to calculate CGT:
Step 1: Disposal of a chargeable asset
- Identify the disposal asset
Step 2: Calculation of the gain
- Assets sale price less its purchase price
Step 3: Consider Reliefs
Step 4: Aggregate Gains/Losses; deduct annual exemption
- Gains and losses are added together and the annual exemption of £12,300.00 is
deducted
Step 5: Apply the correct rate of tax
- There are 4 rates and capital gains is treated as if it were the top slice of the taxpayer’s
income for tax year.
- The following rates apply to any gains other than resi property or gains which do not
qualify for business asset disposal relief:
o If the taxpayers capital gains and taxable income added together do not exceed
the threshold for basic rate income tax (£37,700), the rate of ta payable on the
gains is 10%
o If the taxpayer’s capitals gains and taxable income added together exceed the
basic rate threshold, the rate of tax for any gains up to the basic rate threshold
is 10% and any gains which exceed the basic rate threshold are taxed at a rate
of 20%
Tax Rate for Residential Property
- If the chargeable asset is residential property which is not the taxpayer’s main
residence, the gains are subject to a surcharge of 8%
, o This means that any gains which are below the basic rate threshold are taxed at
18% and any gains which exceed the basic rate threshold are taxed at 28%
Tax Rate for business asset disposal relief
- Any gains which qualify for business asset disposal relief are taxed at 10% regardless
of the taxpayers income.
Tax Rate for Trustees and PRs
- Gains made by trustees and PRs are all taxed at 20% or for residential property, 28%
STEP 1: DISPOSAL (SALE OR GIFT) OF A CHARGEABLE ASSET
The disposal can be a sale or a gift, if it is a gift, then HMRC will use the market value of the
asset at the time of the gift, instead of consideration received, to calculate the gain.
Disposal of part?
, - Even if the taxpayer only sells or gives away part of an asset, it is still chargeable to
CGT
Death of taxpayer?
- When someone dies there is no disposal so no CGT.
- The PRs are deemed to acquire the deceased’s assets at market value at the date of
death.
STEP 2: CALCULATE THE GAIN
Start with the consideration for the sale (or market value) and subtract any of the following
expenditure incurred by the tax payer.
Initial expenditure:
- The cost price of the asset (or its market value or probate value if it’s a give or
inherited)
- Any incidental costs of acquisition and
- Any expenditure wholly or exclusively incurred in providing the asset
Subsequent Expenditure
- Expenditure wholly and exclusively incurred in establishing, preserving or defending
title to the asset
- Expenditure wholly and exclusively incurred to enhance the value of the asset, which
is reflected in the value of the asset at the time of disposal.
Incidental Costs of Disposal
- These include legal fees for the sale and the estate agents fees or commission
Chargeable Person?
- Individuals
- Personal representatives, when they dispose of the assets of the deceased person;
- Partners, when the partners dispose of a chargeable asset. Each partner is charged
separately for their proportion of the gain; and
- Trustees, on the disposal of a chargeable asset from a trust fund
Companies do not pay capital gains tax, they pay corporation tax.
Charities are exempt from paying CGT.
Chargeable Asset?
Under TCGA 1992, a chargeable asset includes all forms of property, including debts,
options and incorporeal property (e.g. a patent or a lease, a legal right in property having no
physical existence).
It does not include sterling.
Steps to calculate CGT:
Step 1: Disposal of a chargeable asset
- Identify the disposal asset
Step 2: Calculation of the gain
- Assets sale price less its purchase price
Step 3: Consider Reliefs
Step 4: Aggregate Gains/Losses; deduct annual exemption
- Gains and losses are added together and the annual exemption of £12,300.00 is
deducted
Step 5: Apply the correct rate of tax
- There are 4 rates and capital gains is treated as if it were the top slice of the taxpayer’s
income for tax year.
- The following rates apply to any gains other than resi property or gains which do not
qualify for business asset disposal relief:
o If the taxpayers capital gains and taxable income added together do not exceed
the threshold for basic rate income tax (£37,700), the rate of ta payable on the
gains is 10%
o If the taxpayer’s capitals gains and taxable income added together exceed the
basic rate threshold, the rate of tax for any gains up to the basic rate threshold
is 10% and any gains which exceed the basic rate threshold are taxed at a rate
of 20%
Tax Rate for Residential Property
- If the chargeable asset is residential property which is not the taxpayer’s main
residence, the gains are subject to a surcharge of 8%
, o This means that any gains which are below the basic rate threshold are taxed at
18% and any gains which exceed the basic rate threshold are taxed at 28%
Tax Rate for business asset disposal relief
- Any gains which qualify for business asset disposal relief are taxed at 10% regardless
of the taxpayers income.
Tax Rate for Trustees and PRs
- Gains made by trustees and PRs are all taxed at 20% or for residential property, 28%
STEP 1: DISPOSAL (SALE OR GIFT) OF A CHARGEABLE ASSET
The disposal can be a sale or a gift, if it is a gift, then HMRC will use the market value of the
asset at the time of the gift, instead of consideration received, to calculate the gain.
Disposal of part?
, - Even if the taxpayer only sells or gives away part of an asset, it is still chargeable to
CGT
Death of taxpayer?
- When someone dies there is no disposal so no CGT.
- The PRs are deemed to acquire the deceased’s assets at market value at the date of
death.
STEP 2: CALCULATE THE GAIN
Start with the consideration for the sale (or market value) and subtract any of the following
expenditure incurred by the tax payer.
Initial expenditure:
- The cost price of the asset (or its market value or probate value if it’s a give or
inherited)
- Any incidental costs of acquisition and
- Any expenditure wholly or exclusively incurred in providing the asset
Subsequent Expenditure
- Expenditure wholly and exclusively incurred in establishing, preserving or defending
title to the asset
- Expenditure wholly and exclusively incurred to enhance the value of the asset, which
is reflected in the value of the asset at the time of disposal.
Incidental Costs of Disposal
- These include legal fees for the sale and the estate agents fees or commission
