Capital Gains Tax – a brief overview

Chartered Accountants and Tax Advisers in Milton Keynes

Being a firm of chartered accountants and tax advisers in Milton Keynes, our clients include both individuals and businesses, which means that we frequently have to deal with various tax-related issues faced by our clients. 

The issue of capital gains tax is a topic which comes up frequently during the course of the financial year, and can be confusing for a lot of people. Below is a brief overview of capital gains tax and the situations in which it must be paid.

Capital Gains Tax

A capital gain will arise when a person disposes a capital asset at a profit.

 

A charge to capital gains tax will arise when a chargeable person makes a chargeable disposal of a chargeable asset. 

 

A chargeable person could be an individual or a company, however if it is the latter than the company does not pay capital gains tax but instead the company pays corporation tax on its gain.

 

If an individual is resident in the UK then they are chargeable to capital gains tax.  Generally individuals who are not resident in the UK do not pay UK capital gains tax even if they sell an asset that is situated in the UK.

 

Chargeable disposal the most common way to dispose of an asset is to sell it to another person.  However, a gift also constitutes a disposal from capital gains tax purposes.  

 

Chargeable assets include assets that are not specifically exempt under the capital gains tax legislation.  Most property is an asset for capital gains tax purposes.

 

Transfers between spouses and civil partners are treated at no gain and no loss which means that spouses can transfer assets freely between them without incurring a  charge to capital gains tax.

 

Annual exemption  Every individual has an annual exemption for capital gains tax which for 2018/19 is £11,700.

 

Calculation of capital gains tax

The rate of capital gains tax depends on the level of an individual’s taxable income and the nature o the asset being disposed of.

 

Gains are generally taxed at 10% to the extent that they do not exceed the individual’s unused basic rate tax band and at 20% to the extent that they exceed the amount of unused basic rate band.

 

Where a gain arises on the disposal of residential property, the 10% and 20% rates increase to 18% and 28% respectively.

 

If you have any questions on capital gains tax or any other taxes then please contact us and we would be happy to help. 

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