Can somebody really explains what is a CAPITAL GAIN (a charge, a tax, who knows?)

Londina

Maybe this is a silly question, but I never really understood what is a capital gain. My book was based on the changes made in 2008 and was quickly released out just for students like me to sit BTC exams in June 2009.

According to the book a capital gain is "A chargeable disposal by a chargeable person of a chargeable asset" , but what it mean really in a simple and pratical situation?

And this is a typical example I often see:

Proceed 150000
Cost 90000

---

Gain 60000

But then? where do you apply says the 18% rate? And which figure do you put in the tax computations?

In the book capital gains were just explained in a totally separate chapter without put them into context and in a whole picture, that's the reason I am still confused.

Monsoon

CGT is a separate tax that deals with the sale of assets, as opposed to regular income.
So regular income from letting a house is subject to income tax. But when you sell that house (assuming it's not your main residence) and you make a profit, you've made a capital gain chargeable to CGT.

Likewise if I buy a gold bar with the intention of it being an investment, and the price shoots up and I sell it for more, that is also a capital gain. If I bought it with the intention of playing the market and buying and selling as the price went up and down, that would likely be considered trading income (and thus subject to income tax).

I don't deal with CGT as I don't come across it often enough, so I subcontract out the technical workings of it (especially for shares, ugh!).

however in your example, with a gain of 60k, you then apply the annual exemption (which is like a separate personal allowance just for CGT) which is about £10,200 now I think per person per year, so the taxable gain of £49,900 is chargeable at 18% to CGT.

payrollpro

Monsoon is right, whatever the circumstances you have to determine if the item, the asset, was acquired for commercial purposes or simple into personal ownership.

The annual exemption is £10,100 this year so yes the gain is £49,900 charged at 18%. In order to account for it you have to request the CGT pages of the SA return and declare the values. If I remember correctly there is some white space to add the information.

Also have to watch out for an asset acquired via inheritance as the valuation on transfer becomes the purchase price.

Bit of an aquired taste is CGT and like Monsoon I hate it, even though I studied it for ATT so I would agree with sub contracting the examination and comps.

Payrollpro

Monsoon

I really loved doing it at AAT (especially share computations) but for some reason it's totally out of my comfort zone now (likely because in real life it's never anything like sample questions That and I don't get asked to do them a lot).

I have the Personal Tax ATT exam next year so will have to revisit it then...

Oh and back to the OP, CGT is a separate module because it goes on its own set of supplementary pages on the tax return. As CT has its own rate independent from income tax now, it's just a separate line on the tax comp. It doesn't really fit into the rest of the picture in any way (in terms of calculation, it does play a part in general tax planning).

Londina

Monsoon wrote: »

however in your example, with a gain of 60k, you then apply the annual exemption (which is like a separate personal allowance just for CGT) which is about £10,200 now I think per person per year, so the taxable gain of £49,900 is chargeable at 18% to CGT.

payrollpro wrote: »

Monsoon is right, whatever the circumstances you have to determine if the item, the asset, was acquired for commercial purposes or simple into personal ownership.

The annual exemption is £10,100 this year so yes the gain is £49,900 charged at 18%. In order to account for it you have to request the CGT pages of the SA return and declare the values. If I remember correctly there is some white space to add the information.

Bit of an aquired taste is CGT and like Monsoon I hate it, even though I studied it for ATT so I would agree with sub contracting the examination and comps.

Payrollpro

Many thanks for the replies, I quite hate it too CGT, so confusing, but I need to understand it, as my boss decided that I should get involve more on it.. :-/ (poor me...).

What I don't understand is when do you charge that 18%? If a company pays already 21% of corporation tax, where this capital gain tax fits in the computation?
Is maybe capital gain calculated says like a depreciation and therefore that £60k of gain multiply by 18% = £10800 goes in the calculation for adjustment of profit?

andrewtdk

Its different for companies they dont pay capital gains tax at 18%. The capital gain is included in the PCTCT for the company and they pay tax at the appropriate rate for the size of the company. Companies dont get the annual exemption but you get an indexation allowance.

While were talking about cgt for companies does anyone know if the gain on shares is calculated differently to individuals? When doing AAT im sure i read the dates for the matching rules were different but havent seen this mensioned since even when doing ATT