As with many areas of tax, capital gains is one of those specialist areas which many people find confusing, and at times, daunting.
In essence, Capital Gains Tax is charged when you make a profit as a result of selling or disposing of an asset. These taxes are charged for a whole range of items which can fall into many different categories, but often include bonds, stocks and precious metals to name a few.
Legislation surrounding capital gains tax is very detailed and you need specialist knowledge to be able to understand the guidance as there is a whole range of exemptions and reliefs that can result in substantial tax savings.
If you work with us we can talk you through everything in detail, then calculate your capital gains tax for you, claim any reliefs, and work out how much tax you are liable for.
As a business owner, you may be thinking of disposing, transferring or selling a proportion of your company to reinvest elsewhere or to use the funds for another purpose. If this is the case, then we can work with you to offer advice on tax planning strategies available to you before you decide to go ahead with the sale, so that we can help you keep your tax liabilities as low as possible.
Calculating the Gain
It’s important to understand that when you are dealing with any aspect of capital gains, the tax is only charged on your profit; not on the full price of the item you are selling. And in addition, the tax only applies if you have actually made a profit.
As an example, let’s say that you bought a business for £50,000 and you sold it for £80,000. The total tax that you will pay will be based on the £30,000 profit, the difference between the price you paid and the price you have received. However, there are instances where capital gains tax will not be payable as you are allowed a certain level of ‘gains’ on an annual basis which are tax-free.
Some assets that you dispose of are not tax deductible, and there are some disposals of normally chargeable assets where you do not have to pay capital gains tax. These typically include asset disposals if they are given away as a gift, transferred to someone else or if you have received the money as part of an insurance claim as a result of loss or destruction.
Capital Gains Tax is usually payable on your profit or ‘gain’ when you sell or dispose of:
- Personal possessions valued at £6,000. This does not include your vehicle
- Any property that you do not use as a main residence
- Your own property if it has been rented out, perhaps you have worked away for a period of time and rented out your house, you have used it for business purposes or it is very large
- Investments in shares that do not fall under the category of a NISA, ISA or PEP
- All business or changeable assets
With certain assets, we can help you reduce your tax by claiming what is known as a ‘relief’.
Furthermore, there are of course many instances where you don’t have to pay Capital Gains Tax and these include;
- Gains you have made inside of your annual tax-free allowance
- Gifts that you have given to charity, your husband, wife or civil partner
- Interest or profit generated from NISAs, ISA savings accounts or PEPs
- Government gilts in the UK or premium bonds
- Winnings from the lottery, pools or betting
- In the event of someone’s death. However, if you inherit something from a deceased relative then you will usually be liable for inheritance tax which is deducted from the estate of the deceased individual.
Even if you have assets which are overseas, you will still have to pay Capital Gains Tax. In addition, there are further rules to adhere to if you are a UK resident but do not reside in the UK and claim ‘remittance basis’.
If you live abroad, then you still have to pay tax on profits that you make on residential property in the UK. However, you won’t have to pay tax on other UK assets such as shares in UK companies, unless you plan on returning to the UK within five years of moving overseas.
Capital Gains Tax Reporting
If you are liable for capital gains you will need to declare this on your annual self-assessment tax return. It is important that if you decide to sell a UK property but are not residing here, that you inform the HMRC within a period of 30 days, even if you do not have any tax to pay.
It is important that you keep up to date records of your transactions to outline the costs, and what you received from each asset. Paperwork that you will need to keep includes receipts, invoices and bills which show the date and amount of funds paid or received.
We can help you fill out your tax return relating to Capital Gains, ensuring that you only pay what you need to pay and that all of the paperwork is correct and accurate. As professional tax specialists, we can help you with records management and help you develop effective planning strategies to make the most of your available funds.
We will work with you to establish new systems and processes to effectively record and claim any entitlements to ensure that your tax is as low as possible.