Are you familiar with capital gains tax?
Capital gains tax (CGT) is a form of taxation that concerns the profit earned by any business or individuals from the sales of capital. For example, the profit that was made from selling a personal residence at a profit is considered a capital gains tax.
CGT is generally less than the income tax. This is because, unlike the income tax, it does not cover the income of an individual. The simplest way of explaining the capital gains tax is to say that it’s the profit that you make from selling a capital asset.
Who Is Liable to Pay Capital Gains Tax
The person who qualifies as the seller of a capital asset is liable for capital gains tax. This also applies to an individual who owns a partnership or corporation. When it comes to capital assets, the whole of the asset is subject to capital gains tax. It does not make a difference whether the individual or organization is using the capital for private or commercial use.
In the case of an estate selling the assets after the death of the deceased, the heirs of the deceased will have to pay the capital gains tax. Even in the case where the assets are sold before the death of the deceased, the capital gain is not going to be exempted from paying capital gains tax.
What Are the Assets Exempted from Capital Gains Tax
Some of the assets that are exempt include:
• Personal residence
• Assets that were inherited
• Assets previously used as a tax shelter
• Gifts
• Non-profit organizations
• Individual retirement accounts
• Stock bonuses
• Deferred compensation
• Farm assets
• Timber
• Life insurance policies
If the asset has been held for over one year and is sold for a profit, the profit is not taxable. It does not matter if the value of the asset is less than or equal to £11,300. The period of holding can be in one tax year or in the five tax years preceding the tax year in which the asset has been sold.
When Do You Need to File Capital Gains Tax
An individual or entity that has the potential to sell their business or just a portion of the assets in the business will need to file the capital gains tax. For example, if you have a rental property, business assets, stock, or other assets, you will need to make capital gains tax. The government will tax the gains from the sale of the business assets even if you don’t make any profits from the sale.
In this case, the taxes are compulsory because you could have made a profit if you sold your assets on the market rather than selling them to your business.
Do You Pay Capital Gains Tax for Your Car
If you are wondering if capital gains tax is paid on the sale of your car, then you are in the right place. The short answer is no, you do not have to pay any capital gains tax for the sale of a car. The reason for this is that you are not making a profit from the sale of your car. It is only the profit that is considered under the capital gains tax.
Do You Pay Capital Gains Tax for Personal Possessions Sold Over £6,000
Yes, you do have to pay capital gains tax for all your personal possessions if they’re sold above the value of £6,000. For example, if you sell a gold necklace for £20,000, you will need to pay capital gains tax if you are not a business.
In the case of personal possessions, you will also pay capital gains tax. If you are a business, then you can claim the equipment as an expense. However, if your business is not making a profit, capital gains tax will still be levied.
Conclusion
Capital gains tax will not be exempted for any assets that are sold for a profit. If you are an individual, the capital gains tax will not include the whole of your assets, but the profit will be taxable. If you are a business owner, then you will need to pay capital gains tax for your business assets. With this guide, you are equipped with all the information you need about capital gains tax.
Accountants 247 can assist you with capital gains tax returns and make a claim for your capital gains tax if you are a business. Let us be your first point of call when preparing your tax return. Contact us today to get started!
