How capital gains tax works

Before you sell an investment, you need to think about the tax on any profits you make. In this video, Tim Bennett introduces capital gains tax.


How capital gains tax works

Capital gains tax hits most investors on most assets sooner or later. As soon as you try and sell them, make some money, capital gains tax comes to haunt you.

In this video, we’ll cover the scope of capital gains tax, what kinds of people get caught, on what kind of deals.

What is taxed by capital gains tax?

Capital gains tax is paid by a chargeable person, making a chargeable disposal of a chargeable asset.
If you have a chargeable person making a chargeable disposal of a chargeable asset, there will be capital gains tax to pay.

Chargeable person: an individual, a company, or a partner in a partnership. You are only caught by capital gains tax if you make a chargeable disposal.

Chargeable disposal: if you sell something as a chargeable person you will probably end up paying some capital g t, but if you give assets away, thinking there are now sales processes to you can’t be taxed, you would b wrong., inland revenue treat gifts ads chargeable disposals, they impute a market value into the transaction, so if you had sold it, this is what I would have been worth. Families, in particular, need to be careful. If you try to give assets away, inland revenue will look very suspiciously at gifts or transfers between you and people above you in the family tree, so parents or grandparents, at anything you do either side of you, at your wife or brothers and sisters, and they’ll look at what you gift or transfer below you, at children or grandchildren.

Chargeable asset: the following is a list of what is not deemed a chargeable asset:

    • Your main property (your first home, not a holiday home or second property). If you buy a house and sell it for a profit, the profit is not a chargeable asset.
    • Gilts
    • Assets that are small and worth up to £6,000.
    • Cars
    • Individual savings accounts contents.
    • Betting gains.

 

 

Click here to see all the MoneyWeek video tutorials