Capital Gains Tax (CGT)
Capital Gains Tax is levied on gains arising from the ‘disposal’ of certain assets.
Basic rate tax payers are charged at 10%, whereas higher and additional rate tax payers must pay 20%. As with Income Tax, each UK resident is given an annual allowance/exemption of £11,100 per annum (2016/17). When selling residential property there is an additional 8% surcharge applied to the 10% and 20% rates, this surcharge also applies to carried interest.
For our private clients, disposals typically take the shape of selling shares in collective investments or the sale of a buy-to-let property.
However individuals should take care as disposal does not necessarily mean the sale of an asset. It includes any transfer of ownership or the derivation of a capital sum from an asset. Disposals that can give rise to CGT might take the form of:
- The straightforward sale of an asset
- Gifts of certain assets to individuals or Trusts
- A capital sum is received for compensation for damage to assets
There are a number of disposals that are exempt from tax. These include:
- The sale of your main home (principle primary residence)
- Private motor vehicles
- NS&I certificates and premium bonds
- Government and most corporate bonds
- Disposal value does not exceed £6,000
- Chargeable gain cannot exceed 5/3rds of the excess
- Foreign currency
- Gambling winnings
- ISAs and CTFs
- VCT shares
- EIS shares (where income tax relief has been given and not withdrawn)
- Disposals to charities, housing associations, national institutions
- Shares held by employees in a share incentive plan
To encourage entrepreneurialism in the UK, the Government also provides additional relief aimed to reduce taxes due on the sale of a successful business on or after April 2008. Qualifying disposals under this relief are taxed at a reduced rate of 10%.
- For gains made after April 2011, the relief cover the first £10m
- From April 2008 – April 2011 the limit changed from £1m, to £2m and then to £5m
- Broadly speaking, relief is available on the disposal of:
- All or part of a business run as a sole trader
- Shares in a trading company where the individual has 5% shareholding in the company
- Share of a Partnership by a partner