CAPITAL GAINS TAX
A UK resident and domiciled individual is taxed on their worldwide income and gains. A Capital Gain occurs when a chargeable person makes a disposal of a chargeable asset irrespective if they convert it into British pounds. The disposal date isn’t necessarily when you physically receive the money; it can be when contracts are exchanged like when purchasing residential property.
Certain assets which have a useful life not exceeding 50 years are exempt from Capital Gains Tax unless they have been used in a trade like racehorses, computers, plant and machinery, which includes items such as clocks and watches.
Dates are therefore critical when making a disposal and it is often imperative you should consult an accountant or tax adviser to assist you with this transaction before it is planned to take place. If you get time your transaction timing wrong, it could lead to a higher Capital Gains Tax Rate and also bring your payment date up to 12 months earlier, whereby you could have used the funds from the Capital Gain to generate additional income or gains. Also with losses, you may wish to bring these forward or delay a Capital loss to maximise their usage rather than potentially letting them go to waste.
The rate of Capital Gains Tax varies dependent on a number of factors and interacts with your Income. The level of your worldwide income will dictate which tax band you will fall within. Everyone is entitled to an Annual Exemption, after which there is a 10%, 18% (10% + 8%), 20%, 28% (20% + 8%) tax rate in addition to reliefs and exemptions. If you have a spouse earning less than yourself, it may be worthwhile transferring an asset or share of such to one another to help mitigate Capital Gains Tax. You must be careful as this can still trigger other taxes or higher Capital Gains Tax if not carried out in a tax efficient manner. We would therefore highly recommend you speak with us to obtain the appropriate advice.