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 £9,200 in the 2007/08 tax year before you are liable to pay CGT (up to £8,800 for 2006/07). 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 £4,600 for 2007/08 (£4,400 for 2006/07).

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'.

Business assets enjoy beneficial rates and include:

shares in unquoted trading companies,
shares in the company where you work, and
assets used for the purposes of your trade.

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 2006/07 should have been paid by 31 January 2008 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.

Chattels (e.g. jewellery, pictures, antiques, bottles of wine) sold for £6,000 or less are exempt regardless of sale proceeds.

Gains arising from assets with an ISA are also exempt.

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.

EIS or VCT Deferral Relief

The Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) schemes allow deferral of CGT by investing in new shares.

In some cases, CGT may be minimised or avoided by 'moving' the liabilities to other tax years.

There are complex criteria surrounding EIS or VCT schemes, which were set up to encourage investment in small businesses.

Proper professional advice should always be sought in connection with these schemes.

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.

The tax articles here are reproduced by kind permission of Just Tax.