|
|
Liability
to capital gains tax (CGT)
CGT is charged on
net gains, i.e. total chargeable gains realised during a tax year after
deducting total allowable losses realised in the year.
Companies are subject to
corporation tax on chargeable gains calculated according to modified CGT
rules.
Disposal of assets
CGT can only arise
on the disposal of an asset. Normally this means sale, but it could also
mean gift or compensation for loss or damage to an asset.
- The
value on which the gain (or loss) is based is normally the
consideration received. However, on gifts and certain sales, the open
market value is used instead.
- No
CGT is payable on death. The beneficiaries of a deceased person's
estate are treated as if they had acquired the assets of the deceased
at their market value on death.
Deductions
Certain costs are
allowable in computing chargeable gains:
- The
acquisition cost or market value on 31 March 1982 (if the asset was
acquired before that date).
- Costs
of acquiring and disposing of the asset.
- Expenditure
on enhancing the asset's value.
- Indexation
allowance (see Capital
Gains Tax: Indexation allowance).
Losses
Losses brought
forward from previous tax years can offset gains. For individual taxpayers,
such losses do not reduce net gains below £8,800, so the annual exemption
is not wasted. (See Corporation
Tax: Capital gains by companies.)
Rate of tax
The first £8,800 of
an individual's net gains realised during the tax year is free of CGT. The
excess is taxed as if it were the top slice of income, at the rates that
apply to savings income, namely 10% on the first £2,150, 20% on the next
£31,150 and 40% on the balance.
Husbands and wives are subject to CGT separately, each
with their own annual exemption and tax rates. Transfers between spouses
living together are not liable to CGT.
Indexation allowance
The indexation allowance
can reduce the chargeable gain for assets acquired before 1 April 1998, but
it cannot increase a loss or turn a gain into a loss. The acquisition cost
and enhancement expenditure (before April 1998) are revalued in line with
indexation factors derived from increases in the RPI (retail prices index)
between the date of expenditure and April 1998.
|
Indexation allowances to April
1998
|
|
|
|
|
|
Jan
|
Feb
|
Mar
|
Apr
|
May
|
Jun
|
Jul
|
Aug
|
Sept
|
Oct
|
Nov
|
Dec
|
|
1982
|
|
-
|
-
|
1.047
|
1.006
|
0.992
|
0.987
|
0.986
|
0.985
|
0.987
|
0.977
|
0.967
|
0.971
|
|
1983
|
|
0.968
|
0.960
|
0.956
|
0.929
|
0.921
|
0.917
|
0.906
|
0.898
|
0.889
|
0.883
|
0.876
|
0.871
|
|
1984
|
|
0.872
|
0.865
|
0.859
|
0.834
|
0.828
|
0.823
|
0.825
|
0.808
|
0.804
|
0.793
|
0.788
|
0.789
|
|
1985
|
|
0.783
|
0.769
|
0.752
|
0.716
|
0.708
|
0.704
|
0.707
|
0.703
|
0.704
|
0.701
|
0.695
|
0.693
|
|
1986
|
|
0.689
|
0.683
|
0.681
|
0.665
|
0.662
|
0.663
|
0.667
|
0.662
|
0.654
|
0.652
|
0.638
|
0.632
|
|
1987
|
|
0.626
|
0.620
|
0.616
|
0.597
|
0.596
|
0.596
|
0.597
|
0.593
|
0.588
|
0.580
|
0.573
|
0.574
|
|
1988
|
|
0.574
|
0.568
|
0.562
|
0.537
|
0.531
|
0.525
|
0.524
|
0.507
|
0.500
|
0.485
|
0.478
|
0.474
|
|
1989
|
|
0.465
|
0.454
|
0.448
|
0.423
|
0.414
|
0.409
|
0.408
|
0.404
|
0.395
|
0.384
|
0.372
|
0.369
|
|
1990
|
|
0.361
|
0.353
|
0.339
|
0.300
|
0.288
|
0.283
|
0.282
|
0.269
|
0.258
|
0.248
|
0.251
|
0.252
|
|
1991
|
|
0.249
|
0.242
|
0.237
|
0.222
|
0.218
|
0.213
|
0.215
|
0.213
|
0.208
|
0.204
|
0.199
|
0.198
|
|
1992
|
|
0.199
|
0.193
|
0.189
|
0.171
|
0.167
|
0.167
|
0.171
|
0.171
|
0.166
|
0.162
|
0.164
|
0.168
|
|
1993
|
|
0.179
|
0.171
|
0.167
|
0.156
|
0.152
|
0.153
|
0.156
|
0.151
|
0.146
|
0.147
|
0.148
|
0.146
|
|
1994
|
|
0.151
|
0.144
|
0.141
|
0.128
|
0.124
|
0.124
|
0.129
|
0.124
|
0.121
|
0.120
|
0.119
|
0.114
|
|
1995
|
|
0.114
|
0.107
|
0.102
|
0.091
|
0.087
|
0.085
|
0.091
|
0.085
|
0.080
|
0.085
|
0.085
|
0.079
|
|
1996
|
|
0.083
|
0.078
|
0.073
|
0.066
|
0.063
|
0.063
|
0.067
|
0.062
|
0.057
|
0.057
|
0.057
|
0.053
|
|
1997
|
|
0.053
|
0.049
|
0.046
|
0.040
|
0.036
|
0.032
|
0.032
|
0.026
|
0.021
|
0.019
|
0.019
|
0.016
|
|
1998
|
|
0.019
|
0.014
|
0.011
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The indexation
allowance is calculated by multiplying the allowable expenditure by the
indexation factor for the month in which the expenditure was incurred or for
March 1982 if later.
Example Allowable expenditure of
£1,000 in June 1984. Indexation allowance: £1,000 x 0.823 = £823.
Identification of securities
Shares and
securities disposed of are identified with acquisitions in the following
order:
- Same
day acquisitions.
- Acquisitions
within the following 30 days (thereby rendering 'bed and breakfasting'
ineffective) but not any acquisitions after a person has become
non-resident.
- Previous
acquisitions after 5 April 1998, taking the most recent acquisition
first.
- Any
share in the 'pool' at 5 April 1998.
- Any
shares held on 5 April 1982.
- Any
shares acquired before 6 April 1965.
Taper
relief
Taper relief reduces
a chargeable gain by reference to how long the asset has been held. It is
applied to net gains after any indexation allowance. Losses are deducted so
as to minimise the total chargeable gain. Different rates of taper relief
apply to business assets and non-business assets. Business assets include:
- Assets
used in an unincorporated business. The owner of the asset need not be
involved in the business.
- All
shareholdings in unlisted trading companies, including AIM companies.
- Any
shareholding of 5% or more in a quoted trading company and any
shareholding in such a company held by any employee or director.
- Employee
holdings of up to 10% in non-trading companies.
- Assets
used in the company's trade where the shares are business assets in
relation to the individual.
|
Number of complete
years after 5 April 1998
for which asset is held*
|
Business
assets
% of gain
taxable
|
Non-business
assets
% of gain
taxable
|
|
|
|
0
|
100.0
|
100
|
|
1
|
50.0
|
100
|
|
2
|
25.0
|
100
|
|
3
|
25.0
|
95
|
|
4
|
25.0
|
90
|
|
5
|
25.0
|
85
|
|
6
|
25.0
|
80
|
|
7
|
25.0
|
75
|
|
8
|
25.0
|
70
|
|
9
|
25.0
|
65
|
|
10 or more
|
25.0
|
60
|
|
*Non-business
assets acquired before 17 March 1998 qualify for an extra year's worth of
taper relief.
|
|
|
|
|
|
|
Example A non-business asset acquired for
£10,000 in May 1985 is sold for £45,000 net of expenses in June 2006. The
asset qualifies for 9 years' taper relief (8 years to 6 April 2006 plus
bonus year).
|
|
£
|
£
|
|
Sale proceeds
|
|
45,000
|
|
Less: allowable
expenditure
|
10,000
|
|
|
indexation
allowance
|
7,080
|
|
|
|
|
(17,080)
|
|
Gain
before taper relief
|
|
27,920
|
|
Percentage
of gain taxable
|
|
65%
|
|
Taxable
gain = 0.65 x £27,920
|
|
£18,148
|
Main exemptions
Gains on certain assets
are exempt (and losses not allowable).
- An
individual's, married couple's or civil partners’ only or main
residence.
- Certain
works of art, historic buildings and their maintenance funds,
decorations for valour, private motor cars.
- Enterprise investment scheme shares
(losses on these are allowable) and venture capital trust shares (see Income
Tax: Tax privileged personal investments).
- Shares
issued after 18 March 1986 under the Business Expansion Scheme.
- Government
securities, loan stocks, qualifying corporate bonds and National
Savings and Investments certificates.
- Individual
savings account, child trust fund and personal equity plan
investments.
- Life
assurance policies disposed of by their original owner.
- Foreign
currency for personal expenditure
- Betting
and lottery wins and compensation or damages for personal wrong or
injury.
|
