What is Capital Gains Tax?
Capital Gains Tax (CGT) is a tax levied on the profit garnered from the sale or disposal of an asset, which has increased in value. It is the difference between what the asset was purchased for and what it was sold for, accounting for any applicable deductions such as allowable capital losses.
In the UK, after subtracting any allowable expenses and capital losses, Capital Gains Tax is imposed on the net amount of chargeable gains. Good news for small timers: there’s a personal allowance (think of it as the tax-free appetizer), which was £11,100 in the fiscal year 2016-17. Beyond this allowance, CGT rates are dependent on one’s total taxable income and the type of asset sold.
Rates and Exemptions
Since April 2016, the general CGT rate is either 10% or 20%, but don’t forget, if you’re in the business of flipping houses, the rates for residential property sales still party like it’s 2015 with older rates of 28% and 18%. Savvy entrepreneurs might also find solace in Entrepreneurs’ Relief, potentially reducing the CGT rate on disposals of certain business assets.
Related Terms
- Chargeable Gains: Net profits from the sale of assets, subject to CGT after all deductions.
- Capital Losses: Losses that reduce chargeable gains when an asset sells for less than its purchase price, also seasonal in the finance world.
- Personal Allowance: A CGT exemption threshold that lets individuals keep a portion of their gains away from the taxman’s grasp.
- Entrepreneurs’ Relief: A potentially lower tax rate for those selling business assets, because sometimes it pays to be your own boss.
Further Reading
If your appetite for fiscal knowledge is as insatiable as a tax auditor at a loophole convention, consider diving into these enlightening texts:
- “The Tax Guide for Traders” by Robert Green: Traverse the turbulent waters of various taxation rules that affect traders.
- “Capital Gains, Minimal Taxes” by Kaye A. Thomas: An insightful exploration of strategies to minimize CGT and keep more of what you earn.
Whether you’re a curious investor, a hopeful home-seller, or just someone looking to crack the financial literacy code, staying informed about CGT can result in significant savings and smarter asset management!
