Capital Gain Tax (CGT):
The tax HMRC charged the tax on the profit earned on the sale of an asset is called Capital Gain Tax. The tax is charged only on the profit individual earned on the asset, not on the proceeds of the asset.
Transaction HMRC considers as disposal of an asset:
- Sale of Assets
- Giving it someone as a gift or transferring it without consideration
- Giving it away in exchange for other assets
- Compensation received from insurance as a result of damage or loss of assets
Chargeable assets for CGT:
- The asset sold whose worth £6,000 or greater than. Personal cars are excluding from these assets.
- Sale of property that is not in individual personal use such as the main
- When the main home is used for the business purpose or the size of the house exceed the exempt size of the house.
- Investment in shares that are not in an Individual Saving Account (ISA) or PEPs
Assets Exempt from CGT:
- Sale of ISAs or PEPs is exempt from CGT.
- Sale of Government gilts & premium bonds is
- Consideration received from betting and lottery winnings are exempt.
Allowance for CGT:
The annual exemption allowance of CGT for the year 2018-19 is £11,700 for individual whereas for trusts it is £5,850
HMRC introduced special rules for spouses, civil partner & charities
- Spouses, civil partner
No CGT will be charged on the gift of an asset to a spouse or civil partner at the time of transfer however when the asset will be sold the gain will calculate from the date of purchase not from the date of the gift.
- When it gifts the asset to charity
No CGT will be charged if individual gifts the asset to charity.
However, if individual sell the asset to charity than CGT will be chargeable.
- Proceeds less purchase price
- CGT will be chargeable even individual sells the asset under market value.
Treatment of Losses:
- Losses on disposal of capital assets are allowed to deduct from the current year or carried forward and set off against the future year.
- Carried forward losses only allowed up to the limit of annual allowance.
- In case of individual death, capital losses are deductible against the capital again of last 3 years on a LIFO
- In the case of assets, the value becomes negligible. An individual can claim a capital
- Individuals apart from residential property and carried interest will be charged 10% CGT for basic tax band and 20% CGT for higher rate band.
- CGT for Individuals on the disposal of residential property and carried interest will be charged 18% CGT for basic tax band and 28% CGT for higher rate band.
- Trustees and personal representative of death estate will be charged 20% CGT on the disposal of capital assets apart from residential property.
- Trustees and personal representative of death estate will be charged 28% CGT on the disposal of residential property.
- Entrepreneur relief is 10%
- Annual exemption allowance is not applicable to the property where the annual tax on enveloped dwelling paid and CGT will be charged 28%
- Companies who are not UK resident 20% CGT will be charged on the disposal of UK property.
Reliefs on CGT:
- Entrepreneur Relief:
10% CGT will charge on the profit of the sale of the whole or a part of the business which qualifies for entrepreneur relief.
- Rollover Relief:
When the business sells the old assets and by the new asset to use it for business purpose within the three years of the disposal of the old asset.
- Incorporation Relief:
On incorporation of business relief is available if a business is incorporated on the basis of going concern and transferred all of its assets to the company and by shares in return.
Relief is only available on the gain that is calculated on the base of shares base cost, not on cash consideration.
- Gift Holdover Relief:
This relief is only available when business gifts the asset to an individual who pays tax and the asset which is gifted were in use of business.
- Principal Private Residence Relief:
This relief is available against the profit to earn by the individual on the disposal of the residential property which is his/her main house. For spouses or civil partners HMRC allows only one principal property for principal property residence relief.
- Relief on investment in EIS:
This relief is available for individual who reinvest the proceeds of a chargeable asset into the enterprise investment scheme shares.
- Relief on investment in SEIS:
This relief is available for individual who reinvest the proceeds of a chargeable asset into the seed enterprise investment scheme shares.