Capital Gains Taxation in the United Kingdom
In the United Kingdom, capital gains tax (CGT) is levied on profits realized from the disposal of certain assets. The taxation framework is outlined in the Taxation of Chargeable Gains Act 1992 (TCGA 1992) and subsequent amendments.
Definition of Capital Gains
Capital gains arise when an individual or company disposes of an asset for a price that exceeds its acquisition cost. Assets subject to CGT include:
- Real estate properties
- Stocks and shares
- Bonds and other securities
- Business assets
Calculation of Taxable Capital Gains
Taxable capital gains are calculated as the difference between the disposal proceeds and the acquisition cost of the asset. The formula is:
Capital Gain = Disposal Proceeds - Acquisition Cost - Allowable Expenses
Allowable expenses include costs incurred in acquiring or disposing of the asset, such as brokerage fees, legal fees, and improvements made to the property.
Tax Rates
Capital gains are taxed at different rates depending on the type of asset and the taxpayer's status. The current rates are:
- Residential property: 18% or 28% for individuals, depending on income
- Non-residential property: 19% or 28% for individuals, depending on income
- Shares and other securities: 10% or 20% for individuals, depending on income
- Business assets: 19% or 28% for companies
Legal Framework
The legal framework governing capital gains taxation in the UK is primarily the TCGA 1992. Key provisions include:
- Section 1: Defines capital gains as profits from the disposal of chargeable assets.
- Section 2: Specifies the types of assets subject to CGT.
- Section 3: Outlines the calculation of taxable capital gains.
- Section 4: Sets out the tax rates applicable to different categories of capital gains.
Policy Objectives
The UK's capital gains tax system aims to:
- Ensure that individuals and businesses contribute their fair share of tax on investment income.
- Promote investment by providing incentives for long-term capital gains.
- Generate revenue for the government to fund public services.
If delving into the depths of tax rules and regulations isn't your style, and you'd rather have experts take the reins, then Heavnn is here to help.
Let us simplify your tax planning journey.
Access Heavnn's blend of professional expertise and cutting-edge technology by clicking the button below.
