Capital Gains Tax
Capital Gains Tax (CGT) is payable on the gain, or profit, made from the disposal of an asset. The tax is paid on the difference made, rather than the sale value. So for example if you buy £10000 of shares and sell them on at £15000, then CGT will be chargeable on the £5000 difference. CGT does not only affect assets which are sold, but which are inherited or gifted, once the asset is sold on.
For example;
If you own a business valued at £50,000, which you then gift to your son, no initial CGT is payable. However if your son then sells the business on at £75,000 then he will have to pay CGT on the £25,000 difference, despite not having paid for the company in the first place. From April 2008 the amount payable on this gain will be £4500 (18% of £25,000).
Likewise, if you gift an asset to your spouse whilst you are still legally married and living together, then no CGT is payable until the asset is sold on.
When calculating your CGT you may deduct buying, selling and improvement costs from the chargeable gain. For example; if you sell on your business at a gain of £50,000 but you spent £15,000 on improvements, CGT would be chargeable on £35,000 (£50,000 less £15,000).
There is also an Annual Exempt Amount (AEA) which is an allowance for capital gains. The AEA for individuals 2007-2008 is £9,200. For more details and information on non-individual allowances see http://www.hmrc.gov.uk/rates/cgt.htm.
No CGT is payable when an asset is donated to a registered charity.
No CGT is payable on certain assets including;
• Your private car
• Personal goods worth less than £6000
• Premium Bonds, British Saving Bonds and Saving Certificates
For more details see the HMRC website; http://www.hmrc.gov.uk/leaflets/cgtfs1.htm