Capital Gains Tax Laws

Capital Gains Taw laws have become quite complex, although the core of the tax is actually very simple.  It is the morass of special conditions, exemptions and regulations that monitor the taxation of different kinds of assets that can make calculating your Capital Gains Tax a daunting prospect.

Under Capital Gains Tax laws, you pay tax on capital gains as follows:

  • When you dispose of an asset by gift or by sale, you are liable to pay tax on the increase in value of the asset since you first acquired it.
  • The first £9,200 in capital gains each year is exempt from tax, as the Annual Exempt Amount (AEA).
  • Any gains in excess of the AEA is added to your taxable income, and taxed as if the top portion of the resulting sum – so at a rate of 10%, 20% or 40% depending on your normal taxable income.

Complications arise from Capital Gains Tax laws in many ways, with the following just a selection of examples:

  • Capital losses can be used to reduce taxable capital gains, including losses from a previous year.
  • Special exemptions exist for certain assets, such as your main residence, car and chattels with a predictable life of under 50 years or that are valued at £6,000 or less.
  • Shares fall under special regulations as they cannot be identified as unique individual assets, instead subject to rules such as LIFO (Last In First Out) and the 30-day rule.
  • Taper relief reduces the tax that is payable on a particular asset, depending on how long you have possessed the asset for.

For more advice and information on Capital Gains Tax laws, look at the links given below and at our Fair Investment Tax Bookshop, stocked with guides and software to make handling tax easier.

Disclaimer: Every effort is made to keep the site accurate, however please bear in mind that tax rates are subject to change. If you require tax advice you should speak to a professional tax adviser.