Any form of property that is disposed of or allows the owner to derive a capital sum from is able to attract capital gains tax, however, some things, due to their status, are exempt from this tax.

 

Exempt status property can include a private vehicle, personal effects up to a value of £6,000, cash in sterling or foreign currency specifically for personal use, and any government stocks or investments that are approved funds as deemed by the Revenue and Customs Office.

 

While the rules applying to trusts can be involved, in general there is a distinction between a legal owner of an asset and the beneficial owner. In a bare trust, it is the beneficial owner i.e. the beneficiary, that is invariably liable for capital gains tax on an asset, but as far as joint ownership is concerned, each owner is assessed as to their share of the asset, and the incidents of tax or the relief available to each of two joint owners may well be quite different. This website may be able to help with providing information on how this may affect your personal financial situation.

 

Normally, capital gains tax arises upon the disposal of an asset, and the law can be somewhat unforgiving in this respect. Selling an asset is, obviously, the disposal of it, however gifting or exchanging it, and even the loss or destruction of it will attract tax.

 

The intricacies of capital gains tax get even more sinister when only a portion of a person’s interest in an asset is disposed, and in this case it can be at first glance assumed that only the commensurate portion of any relief available will be able to be claimed.

If an individual disposes of an asset to their spouse, usually they will not be liable for capital gains tax, however in this lies an exception with regards to trading stock. In this case, capital gains tax is applied in the same way as other disposals.

 

Similarly, if an asset is gifted to someone, it may well attract capital gains tax, even if it is sold for less than market value. Normally, the market value will establish the principle upon which tax is applied.

However, if assets are donated to charity, national or local museums, or similar authority, no capital gains tax is incurred; strictly speaking the tax payer is treated as receiving proceeds from the disposal equal to the allowable costs, indexation and other relief.

 

When a person dies, their assets are free of capital gains tax, as this is not a disposal. When the assets are dispersed, capital gains tax is only payable by the personal representative of the estate when they are sold; the proceeds are subsequently divided between the beneficiaries at a profit with specific regards to the value of the asset at the time of death of the testator. Inheritance tax may well apply, and if this is the case the value of the asset determined for this purpose ought to be the value that capital gains tax uses to determine the tax debt.

The personal representative’s position is assumed to be that similar to a trust and as such, while the ordinary individual’s exempt amount is applied to them, the applied tax rates are those of a trust. In the tax year ending 2008, this was 40%. For further information on how this could affect your personal financial situation, please click here.

 

As a general rule, every capital sum received by an individual is taxable as a chargeable gain for capital gains tax, the only exemptions being compensation for personal injury, lottery wins, or income from funds approved tax exempt by Revenue and Customs.

If assets are owned in a foreign country, capital gains tax will still apply, however, if a tax liability in respect of these assets arises in that foreign country, there will be relief available as far as the UK tax liability is concerned.

 

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