An Introductory Guide to Capital Gains Tax
Posted by Tax Man - 04/06/09 at 08:06 amA capital gain is a sum of money received that isn’t ordinarily part of a person’s income, and this is most likely to happen when a person disposes of an asset that they own. Capital gains tax is usually only imposed and applied if it is deemed there has been a gain in value, known as a ‘chargeable gain’.
Sometimes a person may be taxed even if nothing is received for an asset, as in the case of a gift, and yet if they gift an asset to a spouse no tax liability arises. Certain things are immune from capital gains tax , such as a person’s residence. This is presumably to preserve the sanctity of the family home and treat this as something that even the community in general has no right to levy. Should you require any further information, please click here.
Even if capital gains tax is applicable, this gain must still be net of deductions for allowable costs, indexation, and taper relief, and then it must breach the annual exempt amount of £9,200. Therefore, it would appear that an amount applicable to taxation must jump through many hoops before actual liability arises.
The rate of tax a person pays is determined by their taxable income and the applicable threshold rate, which in the UK 2007/2008 tax year comprised of the sliding scale with 10%, 20% and 40% being the dividing rates.
A husband and wife each have their own exempt amount, and the rates of tax applicable are individually determined according to their appropriate tax bracket, however, only one family home is able to be exempt from capital tax gains between them. To allow otherwise would constitute an exemption that would be unjustifiable.
With specific regards to cases of trusts, it is normally the trustees who are liable for capital gains tax. However, if concerning a bare trust where the beneficiary is completely entitled to the trust assets but for an alternative contingency, such as not reaching the age of majority, then the beneficiary is assessed for taxation purposes. This is including their particular exempt figure that will be applicable with the application of the commensurate sliding tax scale.
On occasion, if the donor is deemed as having gifted an asset, and is liable for capital gains tax, they are often able to recoup this amount from the trustees. It is normal that the rules for tax assessment with specific regards to trusts will differ.
The exempted amount regarding capital gains tax in respect of a trust is not the same as that of an individual, and the threshold rates of tax that is applicable differ as well. Additionally to the nature of this trust, when a trust receives property and the beneficiary reaches entitlement to this property, these are both deemed to be separate taxable occasions and are assessed for the incidence of capital gains tax. For further information on how these taxes can affect the health of your finances, please click here.
