Capital Gains Tax
Introduction > > Capital Gains Tax
This is, to put it simply, a tax on capital gains.
It's levied at 18%.
Everyone has an exemption of £9,600 for 08/09. (Used wisely this exemption can ensure that you need never pay Capital Gains Tax when you come to turn your capital Savings into supplementary income. See "Turning Assets into Income and avoiding CGT").
Pre March 1982 assets
These are to be valued at their March 1982 value.
Post March 1982 assets
Valued at cost.
Entrepreneurs' Relief
When you sell qualifying assets (i.e. a business) your first £1,000,000 of gains are taxed at an effective rate of 10%.
This is a lifetime limit and, for those who build and sell business on a serial basis, you can eat away at it with each business sale until you have used your million.
Historic Notes
There used to be indexation and tapers that reduced the gain for tax purposes. These no longer apply.
Maths - it's a crude simplification, but for most people who faced actually paying CGT on non business assets the tax rate has reduced from 40% to 18%, which is the same as allowing indexation/tapers to slightly more than half a gain prior to taxing the remainder at 40%.
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Definition of Disposal
There is no formal definition of disposal but, for everyday use, the two main events that are classed as disposals are the sale of an asset or the gift of an asset.
Gifts between spouses (living together) are not chargeable at the time of transfer, nor are gifts to certain charities. Most other gifts are, and it is important to take advice before making any significant gifts. For example passing a valuable painting to your child may result in a tax bill arising even though no money has changed hands.
Last updated on April 18, 2008
Creation date 8th April 2003, and based on understanding of the law at that time.