Capital Gains Tax (CGT)

Capital gains tax is payable by individuals who are resident or ordinarily resident in the UK and who make a disposal of an asset in a tax year.

Not all assets are chargeable to capital gains tax. The main exemptions include your only or main residence, private motor cars, chattels bought and sold for less than £6,000, shares held in an ISA, gambling winnings etc.

There are various deductions to be set against the disposal proceeds of the asset(s). These include, the cost of sale, original cost of asset, current year capital losses, capital losses from earlier years, indexation allowance (if applicable), taper relief and annual exemption.

There are additional rules where part of an asset is disposed of, where there are losses brought forward or in the year of disposal and where assets were originally held before 31 March 1982.

Annual exemption

Everyone resident in the UK is entitled to an annual exemption to set against their total capital gains in the tax year. The rate for 2007/2008 is £9,200.

Payment of tax due on capital disposals

If there is a chargeable gain, after all allowable deductions have been made, tax will be payable on this amount at either 10%, 20% or 40%, depending on the taxpayers total income for the year. The liability will be due for payment on the 31 January following the year of assessment. For any gains in 2007/2008, the tax becomes payable on 31 January 2008.

The tax paid does not form part of the calculation in determining the level of payments on account that are required for the following tax year.