Capital gains tax or CGT is a tax applicable to the profits you make when you dispose of an asset. The tax is applied to the gain made from that sale and is reserved for assets that have increased in value over the years.
It’s important to remember that the tax is on the gain made above your tax-free allowance, not the sum you receive from the sale.
What Does Asset Disposal Mean?
Selling an asset is typically referred to as ‘disposing of’ in capital gains tax terminology. Disposing of an asset also includes gifting or transferring it, getting compensated for it (e.g., getting an insurance payout), or exchanging it.
What Assets Are Included in Capital Gains Tax?
The capital gains tax is applicable to assets you’ve owned for at least a year and whose value has increased during the ownership period. Usually, you’re required to pay the tax on:
- Personal possessions that are worth more than £6,000
- Shares, excluding those affiliated with PEP or ISA
- Second properties, such as rental homes or commercial properties
- Investment funds
- Valuables, such as antiques, artwork, or jewellery
You may also be required to pay the capital gains tax on crypto assets if you decide to dispose of them. Similarly, the tax is applicable to your share of the gain for jointly owned assets.
Additionally, you may be required to pay the tax on overseas assets. If you’re residing outside of the UK and make gains on an asset based in the country, the capital gains tax is applicable as well.
Capital Gains Tax & Inherited Assets
Any assets you inherit after the owner’s death are subject to the inheritance tax, which is typically paid by the former owner’s estate. If you keep the asset, you aren’t required to pay a capital gains tax for it. However, if you decide to sell the asset or dispose of it in another way, the capital gains tax comes into effect.
In this case, you’ll need to determine the asset’s value at the time you inherited it, as this will be considered the purchase price. The tax amount will depend on the gain made from the asset disposal.
Contact Our Capital Gains Tax Advisors
Still got questions about the capital gains tax? We’re here to clear away your queries! IBISS & CO Limited is a chartered accountant firm in the UK that helps businesses and individuals with their taxation and accounting needs.
Our tax advisors will advise you on all issues related to capital gains tax and property taxes, helping you dispose of your assets smartly. We’ll also help you take maximum advantage of the tax reliefs offered and plan for potential liabilities.
Contact our team in Walsall today to hire a personal tax advisor for your needs!