This article looks at the basics of capital gains tax on gains in the sale of assets by individuals. Capital gains tax is paid by individuals whereas companies pay corporation tax on capital gains.
HMRC refers to sale of personal possessions. It is useful to note that, they are concerned with the sale of items for more than £6,000, and would include, a second property , jewelllery, paintings, antiques, coins and stamps, matched dining tableware and other items.
Items excluded from Capital gains tax include cars, clocks and other items with a limited lifespan. However, these items become included if they are used for business puirposes.
When a person or couple sell their home, they are usually eligible for Private Residence Relief. They would need to check to verify their eligibility with HMRC. Where an individual sells a property which is not a sole residence, they can expect to pay
Indexation allowance may be available and is based on inflation records known as a consumer price index . Indexation allowance models the effect of recorded inflation on the cost price of the asset. Generally, inflation and therefore, prices, go up, except where a deflationary trend exists. The application of indexation allowance will usually result in a reduction of the capital gain
Once the amount of the gain is calculated, the tax is worked out using the applicable annual exempt amount and the Capital Gains Tax rates.
The annual exempt amount is the amount of capital gain an individual may earn from Capital gain on disposal of personal possessions without taxation.
In the tax year 2016-17, the annual expempt amount was set at £11,100. The tax ratesrange from 10% to 28% depending on the type of asset and other factors.
Capital Gains are assessed via the standard self assessment system, and so, for those who currently do a return, the relevant pages should be filled in. If you have not previously done a self assessment return, and feel that you may require on, please contact us.