A Comprehensive Guide to Capital Gains Tax

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1 A Comprehensive Guide to Capital Gains Tax Easy to read Expanding the world of opportunity The Red Sky Partnership Red Sky House Fairclough Hall Halls Green Hertfordshire SG4 7DP T: E:

2 Capital gains is a tax which has seen many changes over the years not the least of which have been reliefs to enable taxpayers to be exempt from tax on gains which they have accumulated due to inflation. This tax has seen many changes over the years. Is your accountant aware of them all? Capital Gains Tax (CGT) was introduced on 6th April 1965 and by examining the price of property since then, you can see the gains accumulated are significant, but are mainly due to the effects of inflation. To help with this situation the Government established various reliefs over time to make sure only the real gain is taxable. This does not only apply to property but almost all classes of gains. Originally the gain due to inflation was discounted by a formula which related to the time differential between acquiring the asset and the date of disposal, with the gain discounted by the deemed amount of inflation over the ownership period. This was replaced by Taper Relief which effectively had the same effect. Want to know the main exemptions for Capital Gains Tax? Download our CGT Main Exemptions Guide at at redskypartnership -resources.com/ cgtexemptionsguide. html

3 These systems became somewhat abused and a flat rate of 18% was introduced, which is effectively still in use today, except that higher rate tax payers will pay higher rate tax on their gain. CGT is charged on net gains, i.e. total chargeable gains realised during a tax year after deducting total allowable losses realised in the year. This also attracts an annual tax free allowance set annually in the budget. The annual allowance for 2013/14 is 10,900 for all individual taxpayer, personal representatives and trustees of disabled people, except for trustees in other cases which is 5,450. The rate payable for gains on or before 22 June 2010, Capital Gains Tax is charged at a flat rate of 18 per cent. The following Capital Gains Tax rates apply to gains after this date: 18 per cent and 28 per cent tax rates for individuals (the tax rate you use depends on the total amount of your taxable income, so you need to work this out first ) 28 per cent for trustees or for personal representatives of someone who has died 10 per cent for gains qualifying for Entrepreneurs Relief Companies are subject to corporation tax on chargeable gains calculated according to modified CGT rules. If you are concerned about your capital gains tax liabilities or would like to find out how you can significantly reduce your tax, then let The Red Sky Partnership reveal the best solution for you. Arrange your complementary tax review, there s no obligation and no risk, simply call us on us at co.uk or request yours at: redskypartnership-resources. com/taxreview.html

4 How is a gain calculated? Disposal of assets CGT can only arise on the disposal of an asset. Normally this means trade, but it could also mean gift or compensation for loss or damage to an asset. These are known as deemed disposals. The value on which the gain (or loss) is based is normally the consideration received. However, on gifts and certain sales, the open market value is used instead It s the responsibility of your accountant to keep up-to-date on Capital Gains Tax Losses Losses brought forward from previous tax years can offset gains. For individual taxpayers, such losses do not reduce net gains below 10,600, so the annual exemption is not wasted. No CGT is payable on death. The beneficiaries of a deceased person s estate are treated as if they had acquired the assets of the deceased at their market value on death Husbands and wives are subject to CGT separately, each with their own annual exemption and tax rates. Transfers between spouses living together are not liable to CGT. Deductions Certain costs are allowable in computing chargeable gains: The acquisition cost or market value on 31 March 1982 (if the asset was acquired before that date) Costs of acquiring and disposing of the asset Expenditure on enhancing the asset s value Want to know the main exemptions for Capital Gains Tax? Download our CGT Main Exemptions Guide at at redskypartnership -resources.com/ cgtexemptionsguide. html

5 Identification of securities Shares and securities disposed of are identified with acquisitions in the following order: Same day acquisitions Acquisitions within the following 30 days (thereby rendering bed and breakfasting ineffective) Previous acquisitions after 5 April 1998, taking the most recent acquisition first Any share in the pool at 5 April 1998 Any shares held on 5 April 1982 Any shares acquired before 6 April 1965 Entrepreneurs Relief This relief was established to ensure that when disposing of a business the vendor would not be subject to excessive tax on the disposal proceeds. The relief will take effect from 6 April 2008 alongside the Capital Gains Tax reform programme announced at the Pre-Budget Report. The relief will be available in respect of: gains made on the disposal of all or part of a business gains made on disposals of assets following the cessation of a business gains made by certain individuals who were involved in running the business The first 1 million of gains that qualify for relief will be charged to Capital Gains Tax at an effective rate of 10 per cent. Gains in excess of 1 million will be charged at the normal 18 per cent rate. An individual will be able to make claims for relief on more than one occasion, up to a lifetime total of 1 million of gains qualifying for relief. Residence and domicile status Individuals who are resident or ordinarily resident in the UK are liable to CGT on gains from disposing of assets wherever situated. Individuals who are neither resident nor ordinarily resident are not normally liable to CGT unless they are temporary non-residents, or trade in the UK and dispose of UK assets used for the trade. UK resident individuals who are resident and ordinarily resident outside the UK for less than five tax years starting after 16 March 1998 are normally liable to CGT on their return to the UK on disposals abroad of assets acquired before their departure (reentry charge). There is no re-entry charge for individuals who were not resident and not ordinarily resident in the UK for four of the seven tax years before the year of departure, or in respect of periods of non-residence starting before 17 March Non-UK domiciled individuals who are resident or ordinarily resident in the UK or are temporary nonresidents are taxable on non-uk gains only to the extent they are remitted to the UK. If you are concerned about your capital gains tax liabilities or would like to find out how you can significantly reduce your tax, then let The Red Sky Partnership reveal the best solution for you. Arrange your complementary tax review, there s no obligation and no risk, simply call us on us at co.uk or request yours at: redskypartnership-resources. com/taxreview.html Should you move abroad and change your residency status disposal of any capital assets in the UK will attract Capital Gains Tax in the three years following your change of residency. You are responsible, as a taxpayer, to report the gain to HMRC by 5th October following the end of the tax year in which the gain occurred.

6 A Comprehensive Guide to Capital Gains Tax Easy to read Expanding the world of opportunity The Red Sky Partnership Red Sky House Fairclough Hall Halls Green Hertfordshire SG4 7DP T: E:

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