CGT - Working out the tax due
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| The following articles have been extracted under a licence from HM Revenue & Customs website: |
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- Introduction;
- Assets and disposals;
- Working out the chargeable gain;
- Relief’s (other than taper relief);
- Allowable losses;
- Taper relief: qualifying holding period;
- Taper relief: business assets and non-business assets;
- Working out the tapered chargeable gains;
- Working out the amount chargeable to CGT;
- Working out the tax due;
- Post transaction valuation checks for CGT;
- Indexation allowance;
- Taper relief on disposals of business assets on or before 5 April 2000.
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| Introduction |
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| This series of articles tell you the basic rules of Capital Gains Tax (CGT) for individuals. This article shows you how to work out the tax due on your assets. You have to pay CGT on the amount chargeable to CGT (see Section 9). |
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| The rate of CGT you will have to pay depends on the level of your income liable to income tax. The amount chargeable to CGT is added to your income liable to income tax and is treated as the top part of that total. |
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| For the tax year 2003-2004 |
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| CGT is charged at the following rates: |
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- 10% to the extent that your total income after allowances is less than the top of the starting rate band (£1,960);
- 20% to the extent that your total income after allowances is less than the top of the basic rate band (£30,500) and has not been charged at 10%. Note that this charge is at 20%, not the basic rate of income tax;
- 40% above the basic rate limit (more than £30,500).
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| Different rates and limits applied in earlier years. Rates and limits may change in future years. You can look up the rates and limits for particular years on HM Revenue and Customs website. |
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| Your income liable to income tax is |
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- Your total income for income tax purposes (after any income tax relief’s)
- Less;
- Your personal allowances.
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| Where tax has already been deducted, you should take into account the full amount of income including the tax. In the case of dividends from UK companies, you should add the 1/9th tax credit. |
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| Example |
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| You have received a dividend of £900 from a UK company. In addition to the dividend you are entitled to a tax credit. Your dividend voucher shows the amount of the tax credit: £100 in this case. Your income from the company is the total of the dividend and the associated tax credit: £1000. |
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| If you have made Gift Aid payments in the year, the top of the basic rate band is increased. |
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| If you have any unused income tax reliefs or personal allowances, you cannot use these to reduce the amount chargeable to CGT. |
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| Example |
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| In 2003-2004 you have total income of £25,500. Your personal allowances are £4,615. So, your income liable to income tax is £20,885 (£25,500 – £4,615). You have an amount chargeable to CGT of £10,000. |
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| The starting rate limit is £1,960 and the basic rate limit is £30,500.You work out CGT as follows. Firstly, you add the amount chargeable to CGT (£10,000) on top of your income liable to income tax (£20,885), giving a total of £30,885. |
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| As none of the amount chargeable to CGT is within the starting rate limit, you do not tax any of it at 10%.As £9,615 of the amount chargeable to CGT is within the basic rate limit (£30,500 – £20,885) you tax this amount at 20%.As the balance of £385 (£10,000 – £9,615) is above the basic rate limit, you tax this amount at 40%. |
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| Therefore, the amount of CGT you will have to pay is: |
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- £9,615 x 20% = £1,923;
- £385 x 40% = £ 154;
- £2,077.
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| What if I have paid foreign tax on my gains? |
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| If any part of your amount chargeable to CGT has also been taxed in another country, you can claim relief, called tax credit relief, to reduce the CGT that you have to pay on that part of your amount chargeable to CGT. |
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