Capital gains tax in U.K is calculated on the basis of the total capital profit. A capital profit or gain is a type of gain earned by selling and exchanging the capital assets, e.g stocks, bonds, real assets etc.
Scope of Capital Gains Tax:
People who reside in U.K are liable to pay Capital gains tax. But if an individual is not resident of UK, then capital gains tax is calculated on the basis of the amount of money that they are returning to the United Kingdom.
If any company is situated in UK or if its management is controlled from UK then it is considered as a resident company of the UK. Therefore, they are also liable to pay Capital Gains Tax.
Calculations:
- Capital gains tax in U.K is imposed normally on the asset's selling price. Other costs, like costs of capturing and disposing the asset, indexation allowance, the acquisition cost and the expenditure on increasing the asset's value are considered while calculating the chargeable profits.
- For the case of an individual, first 8,800 pounds of the total profit is kept out of taxation. The tax is imposed above that limit and is increased with the rise in the amount of profit i.e 10% tax is imposed for the next 2,150 pounds, after that, twenty percent for the next 3,150 pounds and like that.
- For the companies in U.K, capital gains tax calculation is based on gain. According to the capital gains tax rule, the companies are offered an indexation allowance and a productive value of the Retail Price Index.
- Married couples are individually liable to pay capital gains tax according to their personal yearly exemptions. Transfers between husbands and wives living together are kept out of the scope of tax.
Asset Disposal:
Capital gains tax in U.K is charged on asset disposal. Gifts are also considered as a part of the asset disposal and for this, an open market value is taken, based on which the profit calculation is made.
Exemptions of Capital Gains Tax:
Profits from several assets are exempted from capital gains tax. These are:
- Shares that had not been issued before 18 March 1986 under the Business Expansion Scheme.
- Child trust fund, personal savings account, and investments on personal equity plan.
- Venture capital trust shares and Enterprise investment scheme shares.
- Assets transferred to charities and assets transferred to trustees for the employees' benefit.
- Government securities, qualifying corporate bonds and National Savings and Investments certificates.