What is subject to capital gains tax? You are potentially liable to capital gains tax CGT when you dispose of (gift or sell) an asset.
Assets can be anything of value such as shares, unit trusts, property and antiques. Some assets are exempt.
Disposing of an asset for capital gains tax CGT purposes does not just mean selling it.
The liability to tax therefore includes any transfer of ownership or value of an asset. It covers:
The date that you make the disposal, is the date that the asset needs to be valued.
Some disposals are exempt.
For help on what is taxed and what is exempt contact us.
1. Capital Gains Tax Valuation
Sale value proceeds:
The value of the asset used is normally the value from the proceeds of the sale.
Under market value:
If the sale value is not the full commercial market value e.g. you sell or dispose of the asset on a non-commercial value basis, the actual market value is used and not the sale value.
Contact us today for a free CGT review.
2. CGT Gift Spouse
Gifts or disposals between legally married spouses or civil partners as not subject to capital gains taxes provided they are living together at some point during the tax year.
On transfer of the asset, any loss or gain or allowances are passed to the spouse i.e. they continue.
This can present tax planning opportunities if one partner is a lower rate tax payer and the other is a higher rate tax payer.
It may mean that gains on sale or disposal could be made at a lower rate of tax.
3. CGT Gift Family
If you sell or dispose of an asset to a close family member, excluding a spouse or civil partner, this is a close connection and care needs to be taken.
It is not a disposal at arm’s length and the market value will be used instead of the actual proceeds.
In simple terms, if you sell or gift to a close connection, be aware that the correct market value will be used for any capital gains tax calculations.
4. Death Capital Gains Tax Advice - Death
There is no capital gains tax CGT on the death of an individual.
The beneficiaries of the estate are deemed to acquire the assets at their market value on the date of death.
However, inheritance tax may be payable on the value of the estate.
5. Capital Gains Tax Investment
There are many assets that are exempt from capital gains tax CGT in addition to the allowances and reliefs that we are able to claim.
The following, whilst not a complete list, is a detailed list of the main exemptions:
6. Capital Gains Tax House Home
Main Home - Exempt
Under private residence rules, the gains made on sale or disposal of the main home where you live is exempt.
Land - not exempt
Be aware that if your home has land, then generally up to half a hectare will be exempt but gains on land areas above this may be subject to tax.
Small part disposals of land - if you dispose of a small part of land for e.g. £20,000, you may be able to elect to not have it treated as a disposal for capital gains tax purposes.
Second Home or Investment Property - Gains are taxable
If the property is not your main residence, it will not qualify as your main residence and any gains are subject in full to capital gains tax
If a house does not qualify as the seller’s main residence, e.g. a second home, holiday cottage or let property, any gain on its disposal will be subject to CGT.
7. Capital Gains Tax Property Investment
Be Aware of Capital Gains Tax - 2nd Property Profit Taxes.
With housing booms and many people deciding to invest in second properties, it is well worth being aware of future capital gains tax liabilities.
The rules are quite simple. Any profits made on your main dwelling home are completely free of capital gains tax provided you have permanently lived there.
Therefore, an understanding of what future tax liability you are building up on property is paramount.
Lived there for some of the time?
Part of the gain may not be taxable if you occupied the property as a main residence for part of the period of ownership. In this instance a proportion of the gain that is exempt.
However, if you claim this, be aware that your other property that you now deem to be your main residence may then be caught for capital gains taxes.
You can have two properties, tax free, in certain circumstances - watch the videos at the end of this article ....
8. Capital Gains Tax: Currency Gains
Personal Use - Tax Free
Provided any gains made on foreign currency were made as a result of you purchasing for personal use outside the UK, gains are exempt.
Investment Purpose - Taxable
If you invest in foreign currency for speculative purposes, these gains are chargeable to capital gains tax CGT.
Broadly speaking, the UK GBP £ sterling equivalent of the currency at the point of acquisition is deducted from the UK GBP £ sterling equivalent sale proceeds.
9. Capital Gains Tax Insurance Policy
CGT is not normally payable
If you are the original owner of a life insurance policy, payments out due to maturity or a valid death or illness are normally exempt from capital gains tax CGT.
When would CGT be payable?
Capital gains tax CGT will normally only be payable if you bought the policy of the original owner e.g. a traded endowment policy or if it were transferred to you, following a previous assignment of rights to the policy.
10. Capital Gains Tax Loss
If you make losses when you dispose of assets, these can be set against any gains in the same tax year.
Losses can be carried forward in full or in part if you do not make taxable gains in a given year or if you do not use up the whole loss by offsetting it against gains.
Losses can be carried forward indefinitely if you do not make any chargeable gains.
You cannot transfer losses between spouses or civil partners.
Tax Schedules and Losses
The UK tax system works on a series of five tax schedules:
You cannot offset 'income' losses from one schedule to another
For example, if you are a higher rate tax paying employee and your are suffering losses on your rental property. The rental losses (Schedule A) cannot be offset against you employee income taxed under Schedule E.
You are allowed though to carry forward your capital losses indefinitely with the same schedule, so if you suffered losses on property rentals, you could eventually offset these against taxable profits made on rental income under Schedule A in the future.