A capital gain will arise when a chargeable asset is disposed of for a profit over and above the original cost. Not all assets are subject to capital gains tax. Examples of non chargeable assets include:
- ‘Wasting Chattels’ which are assets which are considered to have a useful life of no more than 50 years, which includes such things as greyhounds, race horses, cars and clocks/watches.
- ‘Gilts’ are treasury stock issued by the Government on which annual interest is payable.
- Qualifying Corporate Bonds (QCB’s) such as loan stock from a company are exempt.
- Shares in ISA’s (individual savings account).
- Gains in shares in EIS and SEIS companies.
Chargeable Disposals
The most common way to dispose of an asset is to sell it to another person. However, a gift is also considered a disposal for taxation, such as giving your child a house outright, or selling it to them below the market value. There are also provisions within legislation that includes the loss, theft or destruction of an asset, which would also be subject to capital gains tax. The gain is calculated as the amount of compensation received les the asset’s original cost.
Annual Exempt Amount
All tax paying individuals are entitled to an Annual Exemption Amount (AEA) which is currently £6,000, however, will half to £3,000 from 6 April 2024. This means if you have any assets you are planning to dispose of, you could save a maximum £600 tax on most assets or up to £840 on the disposal of residential property if you are a higher rate tax payer.
The Government have not yet commented on whether the annual exempt amount will increase inline with inflation (such as the personal allowance or freeze beyond 2024/25).
Gifts to Charities
Gains on gifts of assets (land, property, shares) at undervalue, to charities, are treated as taking place as no gain and no loss. The charity is deemed to have acquired the asset at the same date and price as when the donor acquired the asset. If you sell an asset to charity at a gain then the above rules do not apply and you will be subject to CGT.
Gifts to spouses / civil partners
Any transfer of assets between a married couple / civil partners are at no gain, no loss, meaning that they take the base cost and the date of transfer as when the donor originally acquires the asset. Therefore no tax is payable.
New rules on divorcing couples
Effective from 6 April 2023, divorced couples now have up to 3 years after ceasing to live together as partners to make transfer on a no gain/no loss basis. No gain/no loss rules also apply to separating spouses/civil partners as part of a formal divorce agreement.
CGT tax rates
| Income
< £50,270 Basic rate |
Income
> £50,270 Higher rate |
|
| Residential property (up to 05/04/2024) | 18% | 28% |
| Residential property (from 06/04/2024) | 18% | 24% |
| Other chargeable assets | 10% | 20% |
Disposals of shares in certain share schemes can be exempt or charged at a preferential rate of 10% if the disposal qualifies.
Disposal of residential property
The disposal of your main residence is not usually subject to CGT, however, if the property has been rented out, or if you use a shed in garden as an office, for example, then CGT may be payable on the non-qualifying period of time, or a proportion of the property’s value.
The disposal of residential property must be reported through HMRC property account within 60 days from date of completion (not exchange of contracts). The tax due must also be paid within this time frame. Late returns and payments of tax may be subject to penalties and interest being imposed.
When do I need to pay Capital Gains Tax?
Capital Gains Tax is usually declared on your self-assessment tax return which needs to be submitted by 31 January following the end of the tax year of disposal, which is also the date that the tax becomes due. This is the case for the majority of disposals except for the sale of UK property, which as mentioned above, needs to be paid within 60 days of completion.
If you have any questions regarding the above or would like to discuss any tax problems or queries with us, please contact us.
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