Capital gains tax
Capital gains tax (CGT) is levied when you sell or give away an asset that has increased in value.
Individuals each have an annual exempt amount on which no tax is levied. This figure is £10,600 for the 2011-12 financial year, an increase on the £10,100 exempt amount that applied in 2009-10 and 2010-011.
For gains on or before 22 June 2010, CGT is levied at a flat rate of 18 per cent. After that date, the 18 per cent rate continues to apply to basic rate taxpayers but higher rate taxpayers pay CGT at 28 per cent.
However, “entrepreneur’s relief” on the disposal of a business effectively reduces the CGT rate to ten per cent on gains accumulated during the taxpayer’s lifetime. The relief also applies to gains on disposals of certain shares and assets associated with a qualifying company.
The lifetime allowance for disposals on or after 6 April 2008 to 5 April 2010 was £1 million. It rose to £2 million for disposals on or after 6 April 2010 to 22 June 2010 and to £5 million for disposals on or after 23 June 2010 until 5 April 2011.
For disposals made on or after 6 April 2011, the lifetime allowance has now been increased to £10 million.
There are exemptions to CGT, including the transfer of assets between married couples and civil partners and the profit on the sale of a principal residence. Other exemptions include gifts to charities, privately owned cars and personal belongings where the sale proceeds are less than £6,000.
However the sale of a second home, shares or other property, such as antiques or jewellery, which has gained in value, is likely to be liable to CGT.
How to pay:
CGT must be paid by 31 January after the end of each tax year. For example Capital Gains Tax on gains made in 2010-11 must be paid by 31 January 2012.
It is paid through the self assessment system, and will normally be calculated as part of your self assessment tax return. There are various ways to pay capital gains tax to HM Revenue & Customs, including Bacs, cheque, debit card or credit card, direct debit and internet banking.
The CGT tax regime is so complex that if you don't receive a self-assessment tax return, but think you might be subject to CGT or want to claim losses, we recommend that you talk to a professional adviser.
For more information, visit www.hmrc.gov.uk/cgt
To find out more about how we can help you, please contact us.
