Capital Gains Tax (CGT) is a tax on the increase in the value of an asset between the time it is acquired and the time it is disposed of. Only the gain is taxable, not the amount that you received for it – if you bought an asset, say an investment property, for £150,000 and sold it for £200,000 you would be taxed on the £50,000 gain.
Certain expenses will be deductible on the disposal of an asset to reduce the taxable gain – on the investment property above these would be estate agents and solicitors costs for example. If that net chargeable gain falls within the annual tax free allowance then no tax will be payable. Losses incurred in the same tax year and carried forward losses will also assist to reduce the tax that would otherwise be payable.
Disposing of an asset includes selling it, gifting it to someone else, swapping it or getting compensation for it. This could be an insurance pay out if the asset is lost or destroyed.
CGT is due when you sell or dispose of:
- personal possessions worth £6,000 or more, excluding your car
- any property that is not your main residence (but sometimes on your main residence too!)
- shares that are not in an ISA, NISA or PEP
- Business assets
"Various tax reliefs are available to reduce, defer or entirely avoid CGT applying. There is also no CGT payable on Premium Bonds, betting or lottery winnings or gains from shares held in NISAs, ISAs or PEPs," says Wills & Tax Partner Lee Young.
Giving an asset to your spouse or civil partner does not incur CGT unless at the time of the disposal you are separated and didn’t live together at all in that tax year, or if you give them goods for sale in their business. Trusts also have their uses in deferring CGT applying.
Our Wills & Tax team based in Christchurch also cover Bournemouth, Poole and the New Forest. For a free initial chat, please call 01202 499255 and Lee or a member of the team will be happy to discuss any questions that you may have.