Capital Gains Tax
Capital gains tax (CGT) is levied when you sell or give away an asset that has increased in value.
A flat rate of 18 percent applies to any “gain” or profit above an annual exempt amount, which stands at £10,100 in the 2009-10 financial year. However, “entrepreneur’s relief” on a qualifying disposal of a business effectively reduces the rate to ten percent on gains of up to £1 million, accumulated during the taxpayer’s lifetime. The relief also applies to gains on disposals of certain assets associated with the disposal of hates in a qualifying company.
There are exemptions to CGT, including the transfer of assets between married couples and civil partners and the profit on the sale of a principal residence. Other exemptions include gifts to charities, privately-owned cars and personal belongings where the sale proceeds are less than £6,000.
However the sale of a second home, shares or other property, such as antiques or jewellery, which has gained in value, is likely to be liable to CGT.
CGT must be paid by 31 January after the end of each tax year. For example Capital Gains Tax on gains made in 2009-10 must be paid by 31 January 2011.
It is paid through the self-assessment system, and will normally be calculated as part of your self-assessment tax return.
The CGT tax regime is so complex that if you don't receive a self-assessment tax return, but think you might be subject to CGT or want to claim losses, we recommend that you talk to a professional adviser.
There are numerous ways to pay your CGT to HM Revenue & Customs, including Bacs, cheque, debit card or credit card, direct debit and Internet banking.
For more information, visit www.hmrc.gov.uk/cgt