What Assets and Disposals Attract Capital Gains Tax?

Any form of property that allows an owner to derive a capital sum from through either disposal or other means is able to attract capital gains tax, however, some things, due to their status, are exempt from this tax.

Property of exempt status includes a private vehicle, personal effects up to £6,000, cash in sterling and foreign currency for personal use, and any government stocks or investments that are deemed as approved funds by the Revenue and Customs Office.

While the rules applying to trusts can be involved, in general there is a distinction between a legal owner of an asset and the beneficial owner. In a bare trust, it is usually the beneficiary, as the beneficial owner, that is invariably liable for capital gains tax on an asset; however, with regards to joint ownership, each owner is assessed as to their share of the asset in question, and the incidents of tax or the available relief to either of the two joint owners is assessed individually and as such may differ quite significantly. This website may be able to help with providing information on how this may affect your personal financial situation.

Capital gains tax arises on the disposal of the asset and the law is somewhat unforgiving in this respect. Of course, selling an asset is a disposal, but so is gifting it or exchanging it; even the act of losing or destroying it will attract tax liability.

The intricate nature of capital gains tax becomes more ominous when only a section of a person’s interest in an asset is disposed of, and in this case it can be assumed that only the corresponding portion of any relief available will be able to be claimed.

If an individual disposes of an asset to their spouse, usually they will not be liable for capital gains tax, however in this lies an exception with regards to trading stock. In this case, capital gains tax is applicable in the same manner as any other disposals.

Similarly, if an asset is gifted to someone, it may attract capital gains tax even though it may be sold for less than market value. Usually, the market value will determine the principal upon which tax is applied.

However, if assets are donated to charity, national or local museums, or similar authority, no capital gains tax is incurred; strictly speaking the tax payer is treated as receiving proceeds from the disposal equal to the allowable costs, indexation and other relief.

When a person dies, their assets are free of capital gains tax, as this is not a disposal. When the assets are dispersed, capital gains tax is only payable by the personal representative of the estate when they are sold; the proceeds are subsequently divided between the beneficiaries at a profit with specific regards to the value of the asset at the time of death of the testator. This may be subject to the application of inheritance tax, and if so, the value of the asset determined for this purpose ought to be the value that is used in determining the tax debt in capital gains tax.

The personal representative’s position is taken to be that similar to a trust and so while the ordinary individual’s exempt amount is applied to them, the tax rates applied are those of a trust which in the 2007/2008 tax year was 40%. For further information on how this could affect your personal financial situation, please click here.

As a general rule, every capital sum received by an individual is taxable as a chargeable gain for capital gains tax, with the exceptions being if it is compensation for personal injury, or lottery winnings, or income from tax exempt funds approved by Revenue and Customs.

If assets are owned in a country abroad, capital gains tax will still be applicable, however there will be relief available should a tax liability in respect of these assets arises in the country they are held in.

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