Capital gains tax laws


Capital gains tax (CGT) is a type of tax levied on some transactions in the UK.

Essentially a ‘capital gain’ is a financial advantage acquired when an individual sells an asset for more than they paid for it. In such circumstances they have made a profit, and are therefore liable in some circumstances to pay tax on that profit. This tax is known as capital gains tax.

When should I pay CGT?

Taxpayers are liable to pay capital gains tax when, within the tax year they have made a gain on the sale or disposal of an asset worth over £6,000. However, there are certain exemptions to this as laid out by capital gains tax laws, such as the sale of a primary home.

The source of the capital gains tax laws, which have a principle effect on the amounts charged per year and dictates what is exempt from CGT, is the Taxation of Chargeable Gains Act 1992. Certain case law on capital gains tax and statements of practice from HM Revenue & Customs add extra concessions yearly so these must also be taken into account as part of the legal structure of capital gains tax law.

Who does it apply to?

The law makes a distinction between corporate bodies and individuals as companies are not charged CGT per se, but are charged corporation tax instead. Nevertheless, CGT and corporation tax are calculated in virtually the same way.

Calculations are key to working out whether CGT needs to be charged and, if so, how much.

  • The first step is to work out whether the asset disposed of is a chargeable asset. Whilst a primary home is exempt from being a chargeable asset, the sale of a secondary home (e.g. a buy-to-let property) is a chargeable asset
  • On disposal of this asset, the next step is to calculate the gain; utilise any exemptions such as the annual exempt amount (which changes yearly) or taper relief and then apply the appropriate tax rate

Although this may appear simple, CGT calculations can become increasingly complex if there are several assets whose disposal results in gain within one tax year. Therefore, to ensure that CGT is calculated and dealt with in accordance with the capital gains tax laws it is wise to seek professional assistance from a tax advisor or tax law specialist.

For alternative information on corporation tax, click this link.

Do you need legal advice on Capital Gains Tax law? Contact Law can put you in touch with a specialist tax solicitor to ensure you have correctly declared your profits. Please call us on 0800 1777 162 or complete the web-form above.

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