Tax Planning for UK Investments - Capital Gains Tax
What is CGT
o Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. It’s the gain you make that’s taxed, not the amount of money you receive.
o S 1(2) of TCGA 1992 says that CGT is charged where
§ A chargeable person who makes
§ A disposal of
§ A chargeable asset, leading to
§ A chargeable gain
Reliefs and exemptions
o Annual exemption for indiv of 11,100
o Entrepreneurial relief
o S39 TCGA 1992 requires the exclusion from allowable capital gains deductions of amounts which are:
§ allowable in computing profits or losses of a trade etc for the purposes of Income Tax, or
§ allowable in computing any other income etc for the purposes of Income Tax, or
§ even though not so allowable in computing losses, would be allowable but for an insufficiency of income etc.
§ The result of these provisions is that an Income Tax charge must always take priority over a Capital Gains Tax charge. You should always consider and discard liability to Income Tax before examining liability to Capital Gains Tax.
§ The question is whether the expenditure is capital or “revenue”. The test (Section 39(2) TCGA 1992) is to imagine that the asset was a fixed asset used for the purposes of a trade, and to consider whether the expenditure would be allowable as a deduction in computing trade profits. Repairs, decorating, like for like replacement of kitchen/bathroom etc, new roof, new floor, rewiring, replumbing – all of these (and more) would generally be allowed in an IT computation and therefore disallowable in a CG computation.
§ Gifts between husband and wife or registered civil partners. (No tax at the time, but any gain passes to the new owner and may be taxed on a later disposal.)
§ Gifts to charities.
§ Sale of your only or main home (but see CGT on your home).
o Gift or sale
§ Private cars.
§ Personal possessions (‘chattels’) such as antiques worth no more than £6,000. If you sell a set (of chairs, for example), the £6,000 limit applies to the set, not each item. More valuable chattels may also be exempt, as long as their useful life is 50 years or less. These are known as 'wasting assets'. An example is a boat. See also .
§ Betting, pools and lottery winnings.
§ National Savings & Investments products, Isas, pensions and child trust funds.
§ Proceeds from life insurance policies, unless bought second-hand.
§ Gilts, most corporate and local authority bonds and building society permanent interest-bearing shares (Pibs) and Sharia-compliant equivalents.
§ Shares while held in approved share incentive plans and in some schemes to encourage investment in new and growing businesses.
o When you die
o CGT is the most voluntary of taxes. People can and do delay taking profits if they think the rate is too high. They can buy assets which are exempt, as there is plenty of variety, and there are tax free wrappers. CGT in a way began as a Treasury device to stop people owning bonds and selling them just before they paid the interest to capture the income as a tax free capital gain. They stopped that sometime ago by making people buy gilts with adjustment of accrued income, so people do have to pay income tax. Yet the tax remains.