What is CGT?
Capital gains tax (‘CGT’) is the tax that you pay when you sell an asset. So if you sell property, or an investment you’ll need to consider CGT. In fact anything that you don’t hold for the purposes of a trade (ie that you’ve not bought to sell) will be within the scope of CGT.
Any gain that you make is then taxed depending on the rate of income tax that you pay. So if you’re a 40% taxpayer you’ll pay CGT on the gain at 40%. If you are a basic rate taxpayer you’ll pay CGT at 20% on the gain within your remaining basic rate tax band, and 40% on the excess.
OK – this is pretty straightforward, but based on the above the scope of CGT is huge! (as it covers any objects that you didn’t purchase to sell on). Well, this is correct it does have a very wide scope but the interesting bit is that there are lots of exemptions that take assets out of the scope of CGT. We’ll have a quick look at these so you can see what you can sell without having to account for CGT.
The exemptions from Capital Gains Tax
Your own Home
As most of you will probably know, an investment in your own home is free of capital gains tax, (and income tax as well for that matter).
Chattels which are wasting assets
There is a blanket capital gains tax exemption for ‘tangible moveable property’ that is also classed as a wasting asset.
In general terms if an asset has a predictable life of less than fifty years it is exempt from capital gains tax. An item of machinery is regarded as having a predictable life of less than fifty years and therefore they will usually be a wasting asset.
Therefore many assets that have an element of machinery should in principle be exempt (for example antique clocks and watches)
Anything you make from Gambling is received totally tax free. So there’s no capital gains tax, and there will not also be any income tax or national insurance due
Personal compensation or damages
Most forms of compensation will be exempt from capital gains tax
There is a capital gains tax exemption for ‘normal motor cars’
There is an exemption under capital gains tax for a disposal of a debt by the original creditor
Chattels worth less than £6,000
Even if you have tangible moveable property that does not qualify as ‘wasting’ assets there should be a capital gains tax exemption available if the proceeds are under £6,000.
The annual capital gains tax exemption
It’s also well worth noting that everybody has an annual capital gains tax exemption (currently £9,200) that is available to cover capital gains. So if your gain is less than this there’s no capital gains tax to pay in any event (this means that a couple could purchase an asset jointly and later sell it eliminating profits of £18,400 due to the two annual exemptions).
This should give you a few pointers on which assets you can sell without incurring capital gains tax. We cover all of these and more in detail via our website http://www.wealthprotectionreport.co.uk