Capital Gains Tax in the United Kingdom
From EDeskWiki
All individuals are exempt from CGT up to a specified amount of capital gains per year. For the 2006/7 tax year this "personal exemption" is £8,800. Gordon Brown's budget of 21st March 2007 raised this to £9,200 for the 2007/8 tax year.
| Annual exempt amount | 2005-06 (£) | 2006-07 (£) | 2007-08 (£) |
|---|---|---|---|
| Individuals etc* | 8,500 | 8,800 | 9,200 |
| Other trustees | 4,250 | 4,400 | 4,600 |
| * Individuals, trustees of settlements for the disabled, and personal representatives of the estate of a deceased person. |
Individuals who are resident or ordinarily resident in the United Kingdom (and trustees of various trusts) are subject to a capital gains tax, with exceptions for, for example, principal private residences, holdings in Individual Savings Account/ISAs or gilts. Every individual has an annual capital gains tax allowance: gains below the allowance are exempt from tax, and capital losses can be set against capital gains in other holdings before taxation. Individuals pay capital gains tax at their highest marginal rate of income tax (0%, 10%, 20% or 40% in the tax year 2004/5) but since 6 April 1998 have been able to claim a taper relief which reduces the amount of a gain that is subject to capital gains tax (reducing the effective rate of tax), depending on whether the asset is a "business asset" or a "non-business asset" and the length of the period of ownership. Taper relief replaces indexation allowance for individuals, which can still be claimed for assets held prior to 6 April 1998 from the date of purchase until that date.
A taxpayer is exempt from CGT on his/her principal private residence. Certain other gains are allowed to be rolled over upon re-investment. Investments in some start up enterprises are also exempt from CGT. The sale of a family business can be exempt from CGT upon retirement.
Companies are subject to United Kingdom corporation tax/corporation tax on their "chargeable gains" (the amounts of which are calculated along the lines of capital gains tax). Companies cannot claim taper relief, but can claim an indexation allowance to offset the effect of inflation. A corporate substantial shareholdings exemption was introduced on 1 April 2002 for holdings of 10% or more of the shares in another company (30% or more for shares held by a life assurance company's long-term insurance fund). This is effectively a form of UK participation exemption. Almost all of the corporation tax raised on chargeable gains is paid by life assurance companies taxed on the I minus E basis.
The rules governing the taxation of capital gains in the United Kingdom for individuals and companies are contained in the Taxation of Chargeable Gains Act 1992.
