Capital Gains Tax (CGT) is a tax on profit made when you sell assets or investments. These can be anything from holiday homes to works of art, shares or the goodwill of a business.

If you sell or transfer these assets to someone else for more than you paid for them, you may have made a capital gain. If you give assets away to anyone close to you (apart from your spouse) when they are worth more than you paid for them, for tax purposes you may have made a capital gain.

Allowances

As an individual, you can make a capital gain of up to £9,600 in the 2008/09 tax year before you are liable to pay CGT (up to £9,200 for 2007/08).

The annual exemption for trusts is £4,800 for 2008/09 (£4,600 for 2007/08).

Calculations

Prior to 5 April 2008 CGT was payable at your highest rate of tax.

The gain itself may be reduced by taper relief, the rate of which depends on

• how long the asset has been held, and

• whether or not it is a 'business asset'

Business assets enjoy beneficial rates and include:

• shares in unquoted trading companies,

• share in the company where you work, and

• assets used for the purposes of your trade

Taper Relief was withdrawn at 5 April 2008 although for business assets it has partially been replaced by Entrepreneurs relief which gives an effective 10% rate of tax on the first £1 million of lifetime capital gains on the disposal of business assets.

From 6 April 2008 Gains are charged at a flat rate of 18%.

(see our Quick Guide to Business Assets Taper Relief)

If you make losses on your investments these can usually be deducted from your gains, and losses left over can then be carried forward to offset any capital gains in later years.

Payments

Tax due on capital gains made in 2007/08 should be paid by 31 January 2009 as part of any balancing payment calculated through the self assessment system.

Any CGT due for 2008/09 will be payable on or before 31 January 2010.

Exemptions

The gain from the sale of your main home does not generally incur a charge to CGT unless it has been used for business purposes or you have had periods of non residence which exceed certain levels.

Chattels (e.g. jewellery, pictures, antiques, bottles of wine) sold for £6,000 or less are exempt regardless of sale proceeds.

Gains arising from assets with an ISA are also exempt.

Reliefs

Reliefs may be available in certain circumstances. For example on the gift of business assets or on the gift of 'assets' into certain types of trust, the gain may be 'held over' until the assets are disposed of by the donee.

EIS Deferral Relief

The Enterprise Investment Scheme (EIS) allows deferral of CGT by investing in new shares.

In some cases, CGT may be minimised or avoided by 'moving' the liabilities to other tax years.

There are complex criteria surrounding EIS or VCT schemes, which were set up to encourage investment in small businesses.

Proper professional advice should always be sought in connection with these schemes.

Please note: This guide is intended to provide basic information only. Where specific advice is required, we recommend that you seek proper professional help; either from this firm or other suitably qualified person or practice.