Home Budget 2007 Company Profile Services Accountancy Zone Business Zone Tax Zone IR35 Update News Articles Feedback Search Legal Notice How To Find Us Introduction Gains made by an individual, a partnership or a sole trader are chargeable to capital gains tax (CGT) at the person's marginal income tax rate, after all allowances and reliefs have been used. The chargeable gains of a company that is liable to corporation tax are computed similarly but are then included in the company's profits for corporation tax purposes. When an asset is disposed of, the amount of the gain is broadly the difference between the cost or value on acquisition, increased by an indexation allowance designed to reflect changes in the Retail Prices Index, and the net proceeds of the disposal. Where the asset was acquired before 1 April 1982, the cost of acquisition of the asset is generally taken for tax purposes to be the value of the asset at 31 March 1982. For individuals (but not companies), the indexation allowance is replaced with a taper relief from 6 April 1998. Losses are computed in the same way as gains, and a capital loss incurred in one year may he set against capital gains in the same or subsequent years, but may not be carried back and set against gains in earlier years (except for net losses incurred by an individual in the year of his or her death which may be carried back and set against gains in the three years preceding death). Capital losses may not be relieved by being deducted from profits or income. A loss is only allowable where a gain would have been chargeable to CGT (for example, a loss on the sale of the family home cannot be used to offset a gain on the sale of a business asset). The due and payable date for CGT is normally on or before 31 January following the year of assessment. Any appeal must he within 30 days of the date of issue of the assessment. Allowable expenditure From the payment received for the disposal of an asset (or from its open market value at the time of disposal) must be deducted: The cost of acquisition of the asset; Incidental costs of acquisition; Any expenditure wholly and exclusively incurred in providing the asset, if I was not acquired but was created by the person disposing of it (copyright, or goodwill of new business, for example); Expenditure wholly and exclusively incurred for the purpose of enhancing the value of the asset which is reflected in the state of the asset at the time of disposal; Expenditure wholly and exclusively incurred in establishing or defending the owner's title to (or rights over) the asset; and The incidental costs of the disposal (cost of advertising of disposed asset, fees, commission, accountant's fee, legal fees and the costs of transfer and conveyancing including stamp duties). Chargeable assets Subject to certain exceptions every form of property, wherever situated, is an asset for the purposes of CGT. Property includes: Debts and options; Currency, other than sterling; Property created by the person disposing of it; Property coming to be owned without being acquired, for example, a right to bring a court action for damages. An interest in (or right over) property is, in itself, an asset, so the right to exploit copyright, for example, is considered to be property for the purpose of CGT, and if that right is disposed of for gain, the gain will be liable for CGT. Partnerships Each partner is assessed individually on his share of a capital gain arising from the disposal of the partnership or any of its assets. His or her share of the gain (or loss) will be directly related to his or her share of the partnership assets. Husband and wife Gains of a husband and wife who are living together are calculated separately. The annual exemption (£7,100 in 1999/00) is given to each spouse under independent taxation. Where an asset is transferred from husband to wife (or vice versa) the asset is normally considered to have passed at a value which gives neither a gain nor a loss. On a subsequent disposal, however, the chargeable gain or allowable loss is calculated by reference to the whole period of ownership by both husband and wife. Exempt from CGT From the age of 50 retirement relief is available although this is being phased out over the next few years. Other exempt assets include: Chattels: If the value of tangible, moveable property (household goods such as furniture, personal belongings, jewellery) is sold for £6,000 or less, any profit from the sale is exempt from capital gains tax. Wasting chattels are totally exempt unless the taxpayer claimed or could have claimed capital allowance in respect of such chattels. Compensation for injury or wrong (including damage for libel, slander an enticement) suffered by an individual personally or professionally. Currency acquired for the purpose of meeting personal expenditure abroad (including foreign currency acquired in order to buy or maintain a home outside the UK). Decorations for valour or gallantry. Debts in the hands of the original creditor, personal representative or legatee. Enterprise Investment Scheme. Gains on the disposal of shares after the relevant five year period are exempt to the same extent that full relief was given on the original investment. Gifts. Between husband and wife. Charities. Gifts to charities and certain other bodies. Works of art. Gifts of important works of art, manuscripts, scientific collections provided the recipient undertakes that the article will be kept in the UK. Insurance. Capital sums received under a policy of insurance of the risk of any kind of damage or injury to, or the loss or depreciation of, assets, where the capital sum received is applied in restoring or replacing the damaged asset. Life assurance policies and deferred annuities whether surrendered or held to maturity (except where purchased by a third party from the beneficial owner). Private car. In order to qualify for exemption the vehicle must be constructed or adapted for the carriage of passengers and must be of a type commonly used as private vehicle. Subject to these conditions the exemption extends to veteran motor cars. Qualifying corporate bonds. exempt from taxation, they therefore produce neither chargeable gains nor allowable losses. Savings such as Premium Bonds, Save-as-you-Earn deposits, British Savings Bonds; National Development Bonds., Defence Bonds. Wasting assets. Tangible moveable property (animals, boats, caravans and so on) with a predictable life of 50 years or less not used solely for business purposes. Winnings from betting, lotteries or pools, or from games with prizes. [ Tax Zone Home]