What is Capital Gains Tax?
When setting up a limited company there is alot as a Director you need to take into considerarion, one of which is Capital Gains Tax. This is a tax on the profit or gain you make when you sell or dispose of an asset.
You usually dispose of an asset when you cease to own it - for example if you:
- Sell it
- Give it away
- Transfer it to someone else
- Exchange it for something else
- Receive compensation for it - for example you receive an insurance payout when an asset has been destroyed
It is the gain you make - not the amount of money you receive for the asset - that is taxed.
See example
You bought some shares for £2,500 in June 1992
You sell them for £12,500 in May 2013
You have made a gain of £10,000 (£12,500 less £2,500)
Most assets are liable to Capital Gains Tax when you sell or dispose of them. This applies whether they're in the UK or overseas.
However, some assets are exempt, such as your car, personal possessions disposed of for £6,000 or less and, usually, your main home.
You have an annual tax-free allowance for Capital Gains Tax known as the 'Annual Exempt Amount'.
The Annual Exempt amount for the tax year 2013-14 is: £10,900 for each individual / £5,450 for most trustees
Overall gains
If your overall gains for the tax year are above the Annual Exempt Amount, you will pay Capital Gains Tax on the excess. If your overall gains are below the Annual Exempt Amount, you won’t pay Capital Gains Tax.
See overall gains example
Your overall gain in 2013-14 is £18,000.
The Annual Exempt Amount is £10,900
You'll pay Capital Gains Tax on the excess of £7,100 (£18,000 - £10,900).
For 2013-2014 the following Capital Gains Tax rates apply:
18% and 28% for individuals (the tax rate you use depends on the total amount of your taxable income and gains)
28% for trustees or personal representatives
10% for gains qualifying for Entrepreneurs' Relief
If you would like a little more guidance and information on Capital Gains Tax then speak to one of our contractor accountants here at Genie Accountancy on: 01296 468 185
