What is Capital Gains Tax and when would it be payable?
Just as your income is subject to income tax, profits from the sale of a capital item (such as a property, shares or unit trusts) may be subject to capital gains tax (CGT). CGT is based on how much the asset has increased in value during the time you have owned it. For example, if a house were purchased for £70,000 and sold for £100,000 the profit or "gain" would be £30,000 to a sole owner, or £15,000 each if the property was jointly owned. This would be so even if the property were given away for nothing, as CGT is charged upon the market value of the item disposed of as opposed to the price paid. A seller is able to deduct certain "allowable expenses" from the profit. This would include such things as the costs of buying and selling the property (including legal costs and stamp duty), the costs of enhancing the property (restoration costs but not the costs of maintenance or repairs) and possibly inflation or tapering relief (depending upon ho long the asset was owned).
Would I have to pay CGT upon the sale of my own home?
If you have lived in the property you are selling as your only or main home since you purchased it, then you will generally qualify for the main family home exemption (subject to some exceptions) which means no CGT is payable. Only the main family home is exempt from CGT; a second home is not.
What is the rate of CGT?
The gain is treated as if it were the top slice of your income, which means that those gains are taxed at the highest rate of income tax an individual pays. However, each individual has an annual CGT allowance, currently £8,500. This means that you can make this amount of gain in any given tax year without being taxed. The allowance cannot be carried forward to future years although any losses made on the disposal of other capital assets in the same tax year can be deducted to arrive at the total figure for that year. Any unused losses can also be carried forward to future tax years
Are there any ways of limiting CGT?
Yes. Transfers between spouses are exempt from CGT. Thus, married couples can avoid or reduce CGT by making the most of each of their individual annual CGT allowances by reorganising their affairs. Additionally there are other reliefs available which may assist depending upon your individual circumstances you. The above sets out the basic rules of what is a very complex tax. It does not cover everything and It is vital that you take advice from an expert should If you require advice about your own individual position.
Patterson, Glenton & Stracey have 125 years experience of providing legal services to the people of South Tyneside. Their expertise covers the whole range of legal services including property, litigation, matrimonial and wills and probate. Please access their web site at www.pgslaw.co.uk for further information. Advice in this column is for information only and should not be used as the basis of legal action. Questions about legal problems should be forwarded to Keith Swan at Patterson, Glenton & Stracey, Law Court Chambers, South Shields, Tyne & Wear NE33 1AW
