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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. Capital assets can include stocks, mutual funds, real estate holdings, precious metals, art collections – to name just a few examples. It can only be regarded as a gain if the sales price is higher than the amount invested in the original purchase. Capital gains tax is only due when you sell any of the following: an asset worth £6,000 (except a vehicle), real estate property that is not your main residence, shares not listed in an ISA or PEP or any joint-owned assets.
Capital Gains Tax rates are set at 28% on gains made from the disposal of residential property, and 20% on gains made from other taxable assets. These rates will depend on whether you are a higher or extra-rate income taxpayer. However, 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). Fortunately, you will not be expected to pay Capital Gains Tax on ISAs or PEPs, security and premium bonds issued by the United Kingdom government, or winnings such as bets, pools and lottery wins.
There is also a tax-free allowance. This means that you only have to pay tax when your capital gain is above the set annual amount. For citizens, this currently sits at £11,700, and £5,850 for trusts. Similarly, there are other certain circumstances which may make assets exempt – such as residency, for example. Once this has all been determined, you will need to report this information either through a real-time tax service, or in your annual self-assessment tax return. If this all sounds a bit overwhelming, you can trust Nordens to handle both the reporting and payment of capital gains tax, helping you avoid any risk of inaccuracy or accidental over/underpayment- we’re by your side from start to finish!
Nordens premium service is designed to support you, the you in your capital gains tax calculations, reporting and filing.
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Here at Nordens, we know that Capital Gains Tax can feel confusing. We receive questions almost everyday from business owners nationwide feeling the very same. Here is a little more on the matter:
Capital Gains Tax is levied on capital gains. Capital gains are profits made from the sale 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 Gains Tax is 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.
Capital Gains Tax is paid when an asset is chargeable. The chargeable assets include: 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 (this does not include stock-in-trade). The application of these rules can be complex. Thus, it is best to seek the assistance of a tax advisor or accountant in order to have a clearer understanding of what assets can be charged for Capital Gains Tax upon disposal. You can always reach our accountancy firm for any enquiries.
Based on the provisions of TCGA 1992, certain assets are tax-free. This includes:
• Winnings from bets, lotteries and pools
• Compensation 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 a savings certificate, securities or high premium bonds, it cannot be charged for gains when disposed of
• Interest in a settled property that is later disposed of cannot be charged for gains
• Main residences and wasting assets
• Gains made from the disposal of shares under the Business Expansion Scheme (BES)
SEIS stands for Seed Enterprise Investment Shares enjoyed by UK taxpayers. It was introduced in 2012 by HMRC to help small start-ups raise funds by providing 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.
Capital gain is the profit made when an original investment is disposed of. Capital loss on the other hand is the loss incurred 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.
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