Capital Gains and Losses

Capital Gains and Losses

General overview of Capital Gains and losses

The rules for working out capital gains and losses can be complex and these notes do not attempt to explain everything that could affect your capital gains computations – seek professional advice in the first instance.

Assets

You may have to pay Capital Gains Tax when you dispose of an asset which is worth more on disposal than when you acquired it. For CGT purposes, an asset is any form of property. The most common assets are:

  • stocks, shares and units in unit trusts
  • land and buildings
  • business assets, such as goodwill

CGT is payable in respect of the increase in value of an asset. If you make a loss disposing of an asset you may be able to set that loss against gains on other disposals or carry it forward to a later tax year. You do not have to pay Capital Gains Tax if your taxable gains after deducting allowable losses for the year are, where due, less than your annual exempt amount. For 2017/18, the annual exempt amount is £11,300.

Disposals

A chargeable gain or allowable loss is made when an asset is disposed of. If the disposal proceeds exceed the allowable cost of the asset you may have a chargeable gain. If they are less than the cost, you may have an allowable loss.

There are many ways you can make a disposal, including when an asset, or part of an asset, is:

  • sold
  • given away
  • exchanged
  • lost or destroyed

Sales are the most common kind of disposal. If you are resident and domiciled in the UK you are liable to pay CGT on all your chargeable capital gains, including gains on assets situated outside the UK, after taking off allowable losses. (Your domicile is usually determined by where you were born, or your father’s place of birth).

Capital Gains Tax rates

  • 10% where your total taxable income and gains after all allowable deductions (including losses, the Income Tax personal allowance and the annual exempt amount) are less than the upper limit of the basic rate Income Tax band. 18% on residential property.
  • 20%; excluding residential property and where you are not claiming Entrepreneurs’ Relief. 28% on residential property.

Corporate capital gains solution: 

Assets owned by the companies can cause all sorts of tax headaches, not least corporation tax on gains. For a discussion on what options might be available to you, please contact us in the first instance.

Personal capital gains mitigation: 

The extension of entrepreneurs relief to £10M is generous indeed, albeit that business owners will normally pay a mountain of tax on the road to selling their company. However, for all clients disposing of shares either in investment companies or trading companies of significant size, this may be of little or no value and indeed may be something of which they are unaware.