ASPL Guide to Capital Gains Tax
When you sell or give away an asset for more than you paid (or it’s worth more than when you were given it), you have made a “capital gain”. Most capital gains are liable to Capital Gains Tax (CGT) but because of the various exemptions, many gains can escape the tax altogether, or are taxed at a low rate. You “dispose” of an asset when you sell it or give it away. When you buy an asset or are given one, you “acquire” it. When you give an asset to your legally wed husband or wife, that doesn’t count as a disposal. When your spouse disposes of it, it is the value when you first acquired the asset which counts, not the value at the time you gave it to him/her.
For assets acquired on or before 31st March 1982, it is the value at that date which counts as the original cost. If you acquired an asset later, it is the actual cost.
If you incur any expenses while buying or selling an asset (e.g. stockbrokers or agents, commissions, stamp duty, legal fees) you are allowed to add these to your original cost. If you make a loss when you sell or give away an asset, this loss can be set against any gains you have made on other assets before the tax is levied.
If your losses come to more than your gains, you can carry forward the losses indefinitely to be set against the gains you make in the future.
The “Exempt Band” is the first £10,600 of capital gains you make in the 2011/12 tax year, which is tax-free (a Trust has a limit of £5,300).
For disposals made on or after 23rd June 2010 the rate of tax on the gain in excess of the “Exempt Band” is 18% for basic rate tax payers where total taxable gains and income are less than the upper limit of the income tax basic rate band or 28%. The 28% rate applies to gains (or any parts of gains) above that limit. For disposals made from 7th April 2008 to 22nd June 2010, the rate for all tax payers was 18%. (The rate of tax on estates held by Executors rises from 18% to 28% from 23rd June 2010, except where “Entrepreneurs’ Relief” applies).
Every individual, including husband and wife, have their own limits. So if an asset is owned jointly, husband and wife can each use their own exemption limit. Alternatively, an asset standing at a gain can be gifted to the spouse (without counting as a disposal) and then sold to benefit from the other spouse’s exemption limit; this gifting concession only applies to legally married couples. Each child, from when they are born, has a separate £10,600 exemption limit.
Certain assets are exempt from Capital Gains Tax altogether:
- Your main home;
- Private Cars;
- National Savings Certificates;
- Save As You Earn (SAYE);
- Premium Bonds, Betting and Lottery Winnings;
- “Tangible Moveable Assets” i.e. personal belongings, furniture, jewellery worth less than £6,000 at the time of disposal.
There is no Capital Gains Tax payable (at either 18% or 28%) on your estate on death, but, Inheritance Tax at 40% may be payable depending upon the size of your estate.
Please speak to Adrian or Ivan if you wish to know more.
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