Tax Planning for UK Investments – Capital Gains Tax
What is CGT
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.
S 1(2) of TCGA 1992 says that CGT is charged
A chargeable person who makes
A disposal of
A chargeable asset, leading to
A chargeable gain
Reliefs and exemptions
Annual exemption for indiv of 11,100
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.
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
§ 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
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
Gifts to charities.
Sale of your only or main home (but see CGT on your home).
Gift or sale
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 CGT and possessions.
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
Shares while held in approved share incentive plans and in some
schemes to encourage investment in new and growing businesses.
When you die
Whatever you leave on death (though inheritance tax may be payable instead).
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.