In the simplest sense, you need to pa Capital gains tax if you sell an asset for more than it cost you to acquire it.
In the most straightforward of terms, Capital Gains is
What you receive for an item
What you paid for it
Allowable disposable expenses
The cost of certain improvements.
In its truest sense, capital gains arise when a chargeable person, disposes of a chargeable asset, on a chargeable occasion.
These terms are not found in legislation so tax law would be used to define them. I will explain them in a straightforward and simple manner in order not to make it too technical.
Chargeable people include individuals, partners in a partnership, trustees and personal representatives.
To be charged capital gains tax, the person has to be resident or ordinary resident in the UK (home is in the UK).
Assets that are chargeable to capital gains tax include options and futures, debts, currency, incorporeal property, land and leases and created property.
A chargeable occasion for Capital gains purposes is when you Sell, Exchange or Gift an asset.
There are certain events which are not treated as disposals for capital gains purposes. These are the death of the owner of an asset, a theft of an asset, a transfer of an asset between nominee and the beneficial owner, share reorganisations or exchanges and a transfer of an asset as security for a mortgage.
Who is exempt from Capital gains Tax?
The following are exempt from paying CGT:
- People who are not resident in the UK, unless any gains have arisen from the disposal of assets which are used to carry on a trade in the UK through an agency or branch.
- People that are resident in the UK but are not domiciled here, who dispose of foreign assets and claim remittance basis for the tax years in which the gains arise.
Assets that are exempt from Capital gains Tax
The following is a list of assets that are not chargeable to capital gains:
- Savings certificates,
- Chattels (tangible movable property like sofas).
- Wasting assets (life span of less than 50 years) that are chattels – like TVs, washing machines and computers. But non-wasting chattels like antique furniture, stamps, books and magazines and models and toys will have a chargeable gain when they are disposed of.
- Qualifying corporate bonds.
- Currency in Sterling or foreign currency that was intended for personal use only (like to use on a holiday).
- Windfalls – winnings from betting, lottery, football pots or premium bonds.
Capital Gain Allowance
Every year, you are given a Capital Gains Allowance. For this year (April 2014 – April 2015), the allowance is £11,000. This means that you can make gains of £11, 000 without having to pay a penny in tax.
Do you need to tell HMRC about your gains
You do not need to tell HMRC about disposals of assets in your tax return if:
- Total gain is less than the Annual Exempt Amount.
- And The total proceeds for the assets which have been disposed of have not exceeded 4 times the Annual Exempt amount. (£44,00 for 2014/2015).
- And You have not deducted any allowable losses.
- And You do not want to claim any allowable losses or make and CG claims or elections for the tax year.
How do you notify HMRC about your gains?
You need to notify HMRC of any Capital Gains when you complete your Self Assessment for the year.
Restrictions on using the Annual Exempt Amount
There are 3 main restrictions on using the annual exempt amount:
- The amount is personal – it cannot be transferred between spouses or to your children.
- It relates to a single tax year only – If you do not use the full amount, it cannot be carried forward or carried back.
- It is available for set-off against chargeable gains only. Any unused amount cannot be used to reduce the amount of income chargeable to income tax.
Look at this article on Capital Gains It shows you how capital gains work in the real world and how they affect your investment decisions.