Capital gains tax (CGT) is the tax charged on the money you make on returns on capital. The most common sources of capital gain are:
- Shares when they grown in value
- Unit trusts which are bought cheaply and sold when they increase
- Property, both your own home and your business premises
- Your company, as it increases in value
- Any gains from share options in your company
It doesn't matter where these assets are located. If they make a profit then you are liable for the tax. This is a very important point to consider when looking at offshore investment opportunities. The fact that an offshore trust may not report a profit does not mean that, for the purposes of CGT, it does not exist. It means that if you do not report it you would be considered to be trying to evade tax, which is a criminal offence.
CGT is levied on the disposal of assets, not on paper gains which are not actually realised. Disposal means the sale, gift or loss of an asset (by fire or some other such calamity).
Each form of disposal has its own special factors to consider in calculating CGT. Selling is probably the simplest, you sell an asset and you then have the money to pay the CGT. For losses, if you end up with a capital loss you can use that to offset gains in other areas.
Gifting is more complicated because although you may not realise any cash when you make the gift, the Revenue might still consider that the asset has gained in value and ask you to pay the CGT accordingly. This applies if you sign your company over to someone else.
You need to get familiar with what can be considered a capital gain as distinct from income. Obviously if your company specialises in restoring vintage cars and then selling them on for a profit on a regular basis, then this is considered income not Capital Gains.
CGT is complex, but you can gain relief in the following areas:
- Gilts and other government and corporate Bonds
- National Savings
- Pension Scheme Payments
- Payments made from Life insurance
- Cars (private)
- Your house
- Personal Assets not likely to last longer than 50 years
- Other chattels where proceeds are not large than £6000
- PEPs and ISAs
- 10 Transfers between spouses
- Gifts to Charity
- Damages due to having to pay compensation