Capital Gains Tax

Capital Gains Tax is a tax on the profit when you dispose of an asset that’s increased in value. You are taxed on the gain you make and not the amount of money you receive.

Disposing of an asset includes selling it, giving it away as a gift to certain relatives, swapping it for something else or getting compensation for it (like an insurance pay-out).

You will pay capital gains tax on the disposal of assets which are worth more than £6,000 (apart from your car), on the disposal of rental property, inherited property and on the disposal of your main home if you have let it out, used it for business or if it is very large. You will also pay capital gains tax on the disposal of shares and on the disposal of business assets of a sole trade or partnership (e.g. land & buildings, plant & machinery, shares, registered trademarks, the business’s reputation).

The good news is that Capital Gains Tax is not always payable as there is a tax free allowance called the Annual Exempt Amount of £11,300 available to each individual. If your overall gain is less than the £11,300 annual exempt amount then no tax is due. You also don’t have any Capital Gains Tax to pay on any assets which you transfer or gift to your husband, wife or civil partner. However if they later dispose of the asset then the gain or loss will be calculated from when you or they first owned it.

There may be an opportunity to claim reliefs on the disposal of particular assets. One relief which is available on the disposal of your main residence is Principal Private Residence Relief.

To qualify for the Principal Private Residence relief you must have only one home or nominated your main residence and lived in it for all the time you have owned it, you must not have let part of it out, you must not have used part of it solely for business purposes, the grounds including all buildings must be less than 5,000 square metres in total and you must not have bought it just to make a gain. If all of these apply then your main residence will automatically qualify for this tax relief.

If you have lived away from your main residence you will not qualify for the full Principal Private Residence relief. You will however always get relief for the last 18 months before you sold your home provided it has been your only or main residence at some point while you owned it. To get relief for the first 12 months you must have lived in it as your only or main residence at the end of the 12 months.

When calculating the Capital Gain on the disposal of an asset you are allowed to deduct the costs of buying, selling or improving your property from your gain. These can include estate agent fees, solicitors fees, costs of improvement works (e.g. for an extension, normal maintenance costs are allowable).

If you think you may have Capital Gains Tax to pay on the disposal of assets you should make sure you keep all documentation relating to the disposal and contact your accountant to make sure it is correctly reported to HMRC.

Emer McAleer

 

https://www.abacni.co.uk/category/articles/