Capital gains tax (CGT) is payable on certain items which have increased in value since they came into a person's possession. Not all countries implement CGT and of those that do most have different rates of taxation for individuals and corporations.
Individuals who are residents or ordinarily residents in the UK are subject to capital gains tax. Every individual has an annual CGT allowance. Gains below the value are exempt and gains above are taxable. Companies are subject to CGT on their ‘chargeable gains’.
However, it is not always applicable, so it can be important to know when and how it is deducted. The rules governing the taxation of capital gains in the United Kingdom for individuals and companies are contained in the Taxation of Chargeable Gains Act 1992.
CGT is usually due after the sale of the following types of items over a certain value, including but not limited to:
• Stocks, bonds, shares and other types of liquid investment.
• Property or land.
• Precious metals such as jewellery.
There are a number of possessions which do not fall under this law's jurisdiction including but not limited to:
• A car.
• Individual savings accounts.
• Principle private residences.
• Holdings in ISAs or Gilts.
Monies won from gambling – for example on a bet or on the lottery – are also exempt. Giving an applicable item away or exchanging it can also incur the charge.
One way people can avoid paying the tax is to transfer assets to a spouse or civil partner – providing you are married and living together, the need to declare the income is negated. However, by law, children cannot be given gifts of this nature or sold items cheaply to avoid the tax.
Those who wish to pay their amount can do so by contacting their local tax office or filing out a Self Assessment form if they have been sent one.
If you want to find out more about Capital Gains Tax why not ask AnswerBank Business and Finance.