Capital gains tax is 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.
Capital gains tax is payable at the following rates:
• Basic rate taxpayers (for income tax purposes) pay capital gains tax at a rate of 18 per cent;
• Higher and additional rate taxpayers pay CGT at a rate of 28 per cent. This rate 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 (£11,000 for individuals and personal representatives for 2014/15).
In addition, there are various reliefs and exemptions available, including Entrepreneurs’ Relief. This relief, broadly, allows individuals and trustees with qualifying gains on the disposal of ‘business assets’ to benefit from a reduced rate of capital gains tax at 10 per cent for capital gains up to a lifetime limit of £10m, providing specific conditions are met.
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 allowance 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.