Capital Gains Tax Explained

The Capital Gains Tax which is typically also known as CGT is basically charged on the profits that you make over the annual allowance. This means that any gain that you make over the allowance has to be paid for in the form of Capital Gains Tax.

The payment of CGT is different for different people, and also differs in case of the situations that apply. Basically, the amount that you pay for the tax is dependent upon the asset from which you had the capital gain and the time period for which you have been holding the asset before you had the gain.

The tax rules that apply on the capital gains tax differ for the business assets and non-business assets. A rule that was applied in 1998 was about the holding period of the asset and the tax on the capital gain. According to the rule, the longer an asset is held for, the lesser is the tax that has to be paid over the gains from that asset.

Some of the situations that are counted as you having capital gain or loss are the giving away of the asset to someone, your owned asset being destroyed or lost, and several others. In general circumstances, the most common situation which requires you to pay the Capital Gains Tax is when you sell something and you get more amount for it than what you had paid. Giving something away or getting compensation money also entitles you to paying the CGT.

There are also some exceptions that apply to the Capital Gains tax, and if any of those situations occur, you would not be entitled to pay CGT. One of these situations is when you are selling or just passing away belongings, the worth of which is less than six thousand pounds. Giving away the items to a registered charity is also an exception and in this case you don't have to pay the tax.

Another exception to the payment of the CGT is that, if you are selling your privately owned car or selling your primary home, you are not required to pay the Capital Gains Tax. The tax also does not apply to the payments received from premium bonds, personal injury compensation, and lottery winnings.

There are different rates of the Capital Gains Tax that apply for different income levels. Any asset which is your personal principle asset does not require you to pay GCT on it. However, all the investment properties are subject to tax. When paying the Capital Gains Tax, it is important to remember that whatever amount of capital gain you receive gets added to your taxable income before the marginal tax rate can be applied on it.

When you are calculating the amount of the Capital Gains Tax, it is important to remember that the date of sale or acquisition of the asset that is considered is the one mentioned on the purchase/sale contract. The assets on which a discount can be received are those that are in the name of an individual, and there is a specific time period for which it should be owned.