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Capital gains tax (CGT) was introduced in 1965 but was subject to
a major revision in 1982 and again in recent years.
CGT taxes the gains made on the disposal of certain types of assets.
The term disposal is widely drawn and covers not only sales but also
gifts, transfers at undervalue and some types of compensation for
the loss of an asset. In its simplest form, CGT taxes the difference
between the disposal proceeds and original cost, but, as will become
apparent, the simple case very rarely arises.
CGT is chargeable at a rate equal to the taxpayers marginal income
tax rate. If all the lower and basic rate bands have been used, CGT
will be chargeable at 40%.
If the total of net gains does not exceed your annual exemption, you
are not liable to CGT. All individuals have their own exemption. If
you have large capital gains, it is advisable to make full use of
this exemption each year. You cannot use any surplus income tax allowance
against capital gains.
The effective starting date for CGT is 31 March 1982.
The base cost for assets aquired before 31 March 1982 will be their
market value at that date, any gains accruing from acquisition to
that date are exempt from CGT. It is still necessary to make a comparison
with actual cost in certain circumstances.
You may be caught for CGT if you are resident or ordinarily resident
in the UK when you make the disposal. Ordinarily rersident means habitually
resident so that, even if you are not physically in the UK for the
year in which you make a disposal, you may still be chargeable to
CGT if you cannot satisfy the revenue that you became not ordinarily
resident.
If you are UK domiciled, you are chargeable in respect of the disposal
of assets held anywhere in the world. If you are not domiciled here,
you will only be charged to CGT on overseas assets to the extent that
you remit proceeds to the UK. Therefore, care must be taken in organising
remittances so that capital remitted comes first from non-taxable
sources.
CGT is payable by 31 January following the year of assessment in which
the disposal took place. Where you are planning to dispose of an asset,
you should often try to plan the disposal for early in the tax year
rather than towards the end of it to defer the tax bill for as long
as possible.
Indexation relief removes the inflationary element from chargeable
gains. The main elements are:
• Indexation
applies from the date on which the asset was aquired or March 1982
if later;
• The
indexation allowance is calculated by reference to retail price index
and is applied to the cost of the asset and any allowable improvements;
• Indexation
will be calculated by reference to the market value of an asset where
that asset was held on 31 March 1982.
Indexation can represent a substaintial relief particularly where
assets were held in March 1982, but for disposals on or after 30 November
1993, indexation allowance cannot be utilised to create or increase
a capital loss (subject to a limited transitinal relief applicable
until 5 April 1995). Indexation is now only allowed up to 5 April
1998 therefore Taper Relief has been introduced to take its place.
Allowable losses are taken into account in determining net gains for
the year. Where total gains do not exceed the annual exemption, any
realised losses may be wasted.
Losses not used in any year are carried forward but are only used
in subsequent years to the extent to which they reduce net gains to
the annual exemption level. Care should therefore be exercised to
ensure that maximum advantage is taken by making efficient use of
losses, perhaps by postponing their realisation or by balancing them
with gains.
The old practice of aggregating the gains and losses of each spouse
has been abolished under the independent taxation regime. Each spouse
is now treated as a separate taxpayer.
Transfers of assets between spouses take place at a value which gives
no gain or loss to the transferor, and there is some scope for transferring
assets prior to an onward sale to utilise another exemption and lower
tax rates.
This relief is available to cover gifts of business assets such as
shares in a private company, although there are some restrictions
which need to be carefully considered. The relief is also available
where the transfer of the asset is a chargeable transfer for inheritance
tax purposes. Effectively the gain is passed on to the donee.
Similar restrictions apply transfers in to and out of settlements.
Considerable care is now needed in planning lifetime transfers for
inheritance tax purposes because there is a risk that the same transfer
could give rise to liability to both capital gains tax and inheritance
tax.
A person who disposes of a business asset and reinvests the proceeds
(not just the amount of the gain) in new business assets may defer
the charge to CGT. There is no requirments for the old and new assets
to be used in the same trade. The new asset must be aquired within
a four year period beginning a year before the date of disposal of
the old asset.
Relief is available in certain circumstances where an indiviaual disposes
of business assets including shares in a family trading group. The
relief is given automatically provided the relevant conditions are
met, and it is not necessary that the individual should actually retire
from participation in the business.
This relief has now been dramtically reduced as a result of the introduction
of Business Asset Taper Relief and Retirement Relief will be no more
for qualifying disposals made 06/04/2003.
Taper Relief to be provided.
The UK operates a particularly favourable tax regime for foreign nationals
who are resident in the UK.
Such individuals pay tax on overseas income and capital gains only
if the income or gains are brought in to the UK.
With careful planning, therefore, a foreign national may keep his
or her UK tax liabilities to a minimum.
As in all areas of life, to be forwarned is to be forearmed. It is
imperative that certain steps are taken either before arrival in the
UK or very shortly afterwards, and professional advice should always
be sought.
| Failure to take
expert and timely advice can result in a substantial increase
in an individuals tax bill. |
| The following
are just three examples of what can go wrong: |
| • |
Mr A brought a substantial
sum in to the UK with which to buy a property and incurred a
tax bill in excess of £10,000. This could have been avoided! |
| • |
Mr B failed to set up an appropriate
structure before coming to the UK. On his death his estate faced
an inheritance tax bill of over £100,000. This could have
been avoided! |
| • |
Mr C timed his arrival in
the UK incorrectly and paid £20,000 in capital gains tax.
This could have been avoided! |
Straughans are a leading company of chartered accountants and tax consultants.
We have considerable experience in advising foreign nationals on how
to arrange their affairs in order to minimise UK tax liabilities and
are always happy to meet clients either at the clients home or at
a place of their choice.
• Set
up appropriate structures to shelter foreign assets from UK tax.
• Advise
on structuring tax efficient banking arrangments.
• Assist
foreign nationals with the completion of UK tax returns.
• Negotiate
with the Inland Revenue on the individuals behalf.
Straughans the emphsis is on personal service and clients are assured
of receiving the personal attention of one of the team.
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