A tax on chargeable gains of individuals, trustees and personal representatives of deceased persons.
Broadly, the net gain on an asset is calculated by reference to the difference between the sales proceeds and the acquisition cost. CGT is payable at different rates for basic rate, and higher and additional rate taxpayers. The rate that applies to higher and additional rate taxpayers also applies to trustees, personal representatives of deceased persons and those who pay the £50,000 remittance basis charge regardless of their income levels.
Taxpayers are not liable to CGT if net capital gains after both current and brought forward losses for any tax year do not exceed the annual exempt amount for the year.
In addition, there are various reliefs and exemptions available, including entrepreneurs’ relief.
Companies are not subject to capital gains tax, but are liable to corporation tax on their chargeable gains on the same principles as for CGT (but with certain significant differences). A company pays tax on its chargeable gains at its marginal rate of tax. Companies are not entitled to an annual exempt amount or to certain other reliefs including entrepreneur’s relief. However, in calculating the chargeable gain subject to tax, companies are entitled to an indexation allowance, based on RPI inflation, which can reduce the gain depending on how long the asset has been held.
Where a residential property that has been subject to the annual tax on enveloped dwellings (ATED) is disposed of, there will be a 28% capital gains tax charge on the non-natural person (e.g. company) making the disposal.
In 2015, an FT reporter wrote that partners in British-based private equity firms are likely to face higher tax bills after the Treasury said it would apply the full rate of capital gains to deal profits.
The Treasury said it would immediately prevent managers using “tax loopholes” to reduce the amount of tax they paid. The changes revolve around “carried interest”, the 20 per cent share of deal profits that private equity executives receive on deals after their investors. Historically, this has been classed as a capital gain and taxed at a lower rate than income.
The government said it still “considers that carried interest should be subject to CGT, as it reflects the underlying long term performance of a fund’s investments.”