What Assets and Disposals are Subject to Capital Gains Tax?
8th June 2009 by Tax Man No CommentsAny form of property that allows an owner to derive a capital sum from through either disposal or other means is able to attract capital gains tax, but yet some things are exempt from this tax due to their status.
Exempt status property can include a private vehicle, personal effects up to a value of £6,000, cash in sterling or foreign currency specifically for personal use, and any government stocks or investments that are approved funds as deemed by the Revenue and Customs Office.
While the rules applying to trusts can be involved, in general there is a distinction between a legal owner of an asset and the beneficial owner. In a bare trust, it is usually the beneficiary, as the beneficial owner, that is invariably liable for capital gains tax on an asset; however, with regards to joint ownership, each owner is assessed as to their share of the asset in question, and the incidents of tax or the available relief to either of the two joint owners is assessed individually and as such may differ quite significantly. This website may be able to help with providing information on how this may affect your personal financial situation.
Normally, capital gains tax arises upon the disposal of an asset, and the law can be somewhat unforgiving in this respect. Of course, selling an asset is a disposal, but so is gifting it or exchanging it; even the act of losing or destroying it will attract tax liability.
The intricacies of capital gains tax get even more sinister when only a portion of a person’s interest in an asset is disposed, and in this case it can be at first glance assumed that only the commensurate portion of any relief available will be able to be claimed.
If a person disposes of an asset to their spouse, generally they will not be liable for capital gains tax but there does lay an exception concerning trading stock. In this case, capital gains tax will apply as per other disposals.
Similarly, if an asset is gifted to someone, it may well attract capital gains tax, even if it is sold for less than market value. Usually, the market value will determine the principal upon which tax is applied.
However, if assets are donated to charity or donated to a national or local museum or similar authority, no capital gains tax is incurred, and strictly speaking the tax payer is treated as receiving proceeds from the disposal equal to the allowable costs, indexation and other relief.
Upon a person’s death, their assets are free of capital gains tax as this is not deemed to be a disposal. When the assets are distributed, capital gains tax is only payable by the personal representative of the estate when they are sold, and the proceeds divided between beneficiaries at a profit, with respect to the value of the asset at the time of death of the testator. Inheritance tax may well apply, and if this is the case the value of the asset determined for this purpose ought to be the value that capital gains tax uses to determine the tax debt.
The personal representative’s position is assumed to be that similar to a trust and as such, while the ordinary individual’s exempt amount is applied to them, the applied tax rates are those of a trust. In the tax year ending 2008, this was 40%. For further information on how this could affect your personal financial situation, please click here.
As a general rule, every capital sum received by an individual is taxable as a chargeable gain for capital gains tax, with the exceptions being if it is compensation for personal injury, or lottery winnings, or income from tax exempt funds approved by Revenue and Customs.
If assets are owned in a foreign country, capital gains tax will still apply, however, if a tax liability in respect of these assets arises in that foreign country, there will be relief available as far as the UK tax liability is concerned.
