Capital Gains Tax

Capital Gains Tax is generally payable when something you have sold has risen in value. The first time most people have reason to be concerned with CGT is when a second residential property is sold. The primary residence is the home where people spend the majority of their time, these do not generally attract Capital Gains Tax, however owning a property which is not the primary residence generally does attract CGT.

We mentioned above, an asset needs to be sold before Capital Gains Tax applies, that was a simplification, actually an asset can be sold, given away or swapped, and it may still attact Capital Gains Tax!

Capital Gains Tax payable is basically worked out on the difference between the purchase price and the sale price, remembering that you dont necessarily need to purchase or sell something to attact, but to keep things simple, here are some examples of CGT taxable items:

• Shares , except for ISA’s and PEP’s.
• Most personal posessions £6,000 and above in value.
• Business assets.
• Paintings.
• Bitcoin and other Crypto currency.

There are many other assets which also attract CGT, so if you are concerned, please do contact us, with CGT it sometimes seems like there are exceptions to every rule, for example; If you own one home which is your primary residence, but have used it for business, let it out or it is a very large home, you may be liable for CGT.

How to work out Captial Gains Tax

Working out the CGT liability is actually really simple, take for example a painting you purchased a few years ago, at the time it cost you £10,000. This year it fetched £15,000 at auction, in theory that leaves £5,000 as taxible under CGT. However as with most things “accountancy”, they key is knowing what could be done to reduce the CGT bill, can you apply 100% of the £2,500 restoration you spent on it, what about the auctioneers fees?

As you can see, while in theory CGT is a really simple tax to work out, but you run the risk of losing money by overpayment of tax, or risk the wrath of HMRC’s investigation and penalties if you assess the CGT incorrectly.

I don’t pay tax normally though

GCT is not generally affected by your financial situation, unemployed, retired, on the payroll, self employed are all affected the same, however you do benefit from an annual allowance sometimes called Annual Exempt Amount. Currently this is £12,300 per person (unless a trust).

Finally

As we mentioned, there are many exceptions to these rules, for example married people can transfer assets between each other without CGT, unless the assets are later sold or used in business, then CGT is payable.

If you are at all concerned about CGT then please contact us and one of our friendly team will be able to examine your particular circumstances and give the answers you need.