When an individual or corporate body holds an asset that is not for sale or not part of stock-in-trade, capital gains are made from the appreciation in the value of these capital assets. What constitute capital assets? Capital assets include stocks, mutual funds, real estate holdings, precious metals, art collections and many others. It can only be regarded as a gain when if the sales price is higher than the amount invested in their purchases while it is a loss when it is the other way round. Also, capital gains tax is only due when you sell any of the following: an asset worth £6,000 except your car, real estate property that is not your main apartment, shares not listed in an ISA or PEP, jointly owned assets and business assets. The capital gains tax rates are:
• 28% on gains made from the disposal of residential property
• 20% on gains made from other taxable assets
The above rate depends on your being a higher or extra rate income taxpayer but if all you pay is the basic rate, you are charged based on the level of your gain, taxable income and the source of your gain (residential asset or any other).
The ones you do not pay capital gains tax on are ISAs or PEPs, security and premium bonds issued by the United Kingdom government as well winnings such as bets, pools and lottery wins.
Mind you, there is a tax-free allowance. This implies that you only have to pay tax when your capital gain is above the annual tax-free allowance. The allowance is £11,700 while £5,850 is for trusts. Similarly, there are other circumstances in favour of whether the capital gain is paid on an asset or not. If you are a resident in the United Kingdom, different rules apply.
To report any capital gains tax, you need to pay using real-time Capital Gains Tax Service or through Self Assessment tax return every year. The HM Revenue and Customs (HMRC) is the tax authority involved in this process as well. It is required that a report is filed as early as possible in order to avoid the risk of being penalized by the authority in charge.
At Nordens, we handle all the process involved in reporting capital gains tax. After we have worked out whether you need to pay or not, we will help you settle the following basics as well:
• Total taxable gains
• Estimation of a tax-free allowance against the gains that is chargeable at the highest possible rate
• Reporting and payment of capital gains tax using your Self Assessment tax return
• Change your report as and when required, among others
When you trust Nordens to handle the reporting and payment of your capital gains tax, you are able to avoid the risk of missing the deadline or sending inaccurate returns. Be assured that our expert accountants and tax advisers are prepared to give help and also manage all of your needs in this regard.
Frequently Asked Questions
What is Capital Gains Tax?
Capital gains tax is levied on capital gains. Capital gains are profits made from the sale of some kind of assets such as stocks, premium bonds, precious metals and real estate holdings. What determines whether it is a capital gain or loss is the difference between the sales price and the original price at which it was purchased. The capital gain tax is however calculated on the profit. Capital gains can only be calculated when the asset is sold. It is not concerned with how much is gained while it is held by the investor.
What am I taxed on?
Capital gains tax is paid when an asset is chargeable. The chargeable assets comprise personal possessions worth above the value of £6,000, any asset that is not your main apartment, shares (with the exemption of those listed as an investment or under the tax-free scheme), and assets that are used for business (not stock-in-trade). The application of rules can be complex. It is best to seek the help of a tax advisor or accountant in order to have a clearer understanding of what asset can be charged for capital gains tax upon disposal. You can always reach our accountancy firm for any enquiries.
What assets are tax-free?
Based on the provisions of TCGA 1992, certain assets are tax-free. They are considered below:
• Winnings: Winnings from bets, lotteries and pools are tax-free
• Compensations or damages received as a result of any loss suffered by an individual or corporate organisation or the asset in custody cannot be charged for gains
• When a government issues savings certificate, securities or high premium bonds, it cannot be charged for gain when disposed of
• Interest in a settled property that is later disposed of cannot be charged for gains as well
• Main residence and wasting assets cannot be charged
• Gains made from the disposal of shares under the Business Expansion Scheme (BES) cannot be charged
What is CGT relief for SEIS-qualifying investment?
SEIS stand for Seed Enterprise Investment Shares enjoyed by UK taxpayers. It was introduced in 2012 by HMRC to small start-ups raise fund by providing a number of tax reliefs to any investor who holds share interest in the company. Thus; SEIS allows you to claim relief of about 78% or more on about £100,000 investment. On capital gains tax, there is an exemption on earnings from shares. Also, profits realised within a period of three business years and reinvested in SEIS enjoys capital gains exemption. Meanwhile, you should be aware that your SEIS tax-relief cannot be carried forward.
What about Gains and Losses on Investments?
Capital gain is regarded as the profit made when an original investment is disposed of while the capital loss is the loss when an investment is sold less than the original purchase value. To determine whether it is a gain or loss, the amount that has been gained is divided by the original amount invested. If the percentage appreciates, it is classed as a gain and vice versa. If you experience a loss in investment in a tax year, it is advisable to sell assets that have a good return on investment as soon as possible. The losses can be employed to compensate for gains in the same year.
