Capital gains tax is charged on the increased value of an asset at the time of disposal. This tax is only applied for the items that you sold (realized), not on the unsold items (unrealized capital gains).
Like the value of your stock shares increases every year, but you don’t have to pay for the capital gains until they are sold. It is only applied to the gain in value you get, not on the total amount you receive after selling.
For instance, you bought land for £10,000 and sold it later at £25,000. Here, your capital gains value would be £15,000( £25,000-£10,000).
Key Takeaway: Remember that some assets are tax-free. Plus, you are not liable to pay this tax if your gains value is under your tax-free allowance.
You can ask for help on tax issues from our professional chartered accountants in London!
What is Disposal of Assets?
According to the government websites. The below circumstances mean that you have disposed of your assets by:
- Selling them.
- Gifting or transferring them to another person.
- Exchanging or swapping for another thing.
- Getting compensation for lost or destroyed items.
Chargeable assets for Capital Gains Tax (CGT):
You are liable to pay CGT on these things you dispose of or sell:
- Your personal possessions costing £6,000 or above. (excluding your car)
- Property that you don’t use as a home.
- Your personal home comes under this tax when you have given it away, using it as a business and it is very large.
- Those shares that are not in ISA or PEP.
- Assets of a business.
Key Takeaway: You can reduce your tax bill by deducting losses. In addition, you can also claim relief on the tax, depending on your asset’s value. In case you jointly own an asset, you are liable to pay tax only on your share. We can guide you further on this.
Assets that are exempted from Capital Gains Tax:
You will only pay the tax for the assets that raise above your capital gains tax allowance that is £12,300 (£6,150 for trusts). Others include:
- You are exempted to pay taxes on gifts you give to your spouse, civil partner, and charity.
- Assets on which you have made gains from ISAs or PEPs.
- Gilts and Premium Bonds of the UK government.
- Gains you achieved through Betting, lottery, or pool winnings.
Tax for deceased:
If you have inherited the estate of a deceased, you have to pay inheritance tax. And you only have to pay tax on capital gains if you dispose of any asset, later.
Gains Tax for Overseas:
Capital Gains Tax for Non-residents:
This tax is applicable to non-residents too if the value of your UK’s property or land gains. For other assets like shares, you are exempted from this tax unless you came back to the UK after 5 years of your departure.
Though, it is obvious that this tax reduces your overall return on investment. However, there are legitimate strategies through which you can reduce or eliminate your net CGT.