An Introductory Guide to Capital Gains Tax

A capital gain is a sum of money received that isn’t ordinarily part of a person’s income, and this is most likely to happen when a person disposes of an asset that they own. Still, capital gains tax is only imposed when there has been what is known as a ‘chargeable gain’ or a gain in value.

At times, when a person receives nothing for an asset, such as in the case of a gift, they may be taxed; however, if they were to gift an asset to a spouse, there may be no tax liability. There are certain things that hold immunity from capital tax gains, such as a person’s residence. Presumably, this is to allow the family home to remain a place of sanctity, safe from the domain of the jurisdiction of the community in general. Should you require any further information, please click here.

Should the capital gains tax be applicable, the gain must be net of deductions for allowable costs, taper relief and indexation, and must subsequently breach the annual exempt figure of £9,200. Therefore, it would appear that an amount applicable to taxation must jump through many hoops before actual liability arises.

The rate of tax which a person pays is established by their taxable income and the applicable threshold rate, which in the UK 2007/2008 tax year comprised of the sliding scale with 10%, 20% and 40% being the dividing rates.

A husband and wife each have their own exempt amount, where the rates of tax that are applicable are individually established according to their appropriate tax bracket, however, only one family home is able to be exempt from capital tax gains between them. To allow otherwise would constitute an exemption that would be unjustifiable.

In the case of trusts, it is usually the trustees who are liable for capital gains tax. However, if concerning a bare trust where the beneficiary is completely entitled to the trust assets but for an alternative contingency, such as not reaching the age of majority, then the beneficiary is assessed for taxation purposes. This is including their particular exempt figure that will be applicable with the application of the commensurate sliding tax scale.

Sometimes, if the donor of a trust is liable for capital gains tax due to being deemed as having gifted an asset, they are often able to recoup this amount from the trustees. Often the rules for tax assessment in regard to trusts will differ.

The amount exempted with regards to capital gains tax in respect of a trust is different to that of an individual. Similarly, the threshold rates of tax differ in their applicability. In addition to this feature of a trust, when a trust receives property, and when the beneficiary becomes entitled to trust property, these are both deemed to be taxable dispositions, and so are assessed for the incidence of capital gains tax on each occasion. For further information on how these taxes can affect the health of your finances, please click here.

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