This piece first appeared in the money section of the Saga website on 9 June 2010
The text here may not be identical to the published text

CAPITAL GAINS TAX - NO WORRIES

Don’t worry about Capital Gains Tax. There is a 400 to 1 chance you won’t have to pay it this year. The coalition Government is committed to changing it. Probably raising the rate from 18% to something close to income tax rates of 20%, 40% or 50%. And if that happens there will almost certainly be concessions which will limit its effect on older people or on those who have held assets for a long time. We will know on 22 June. Meanwhile here is why you (almost certainly) do not have to worry.

Capital Gains Tax is applied when you sell an item for a profit. It is a tax on the difference between the selling price and the price you paid. So if you buy a house for £100,000 and sell it for £200,000 the tax is applied to the gain of £100,000. However, there are lots of exemptions that can reduce the amount due, to nothing in some cases.

Exemption 1: It does not apply to some things at all. They include mechanical devices such as clocks and vintage cars. It does not apply to wasting assets – so vintage wine is almost always excluded.

Exemption 2: It does not apply to furniture and other things called ‘chattels’ which you sell for less than £6000. So unless you have a really expensive item on which you have made a really big gain when you sell it is not something to worry about.

Exemption 3: You can deduct from the selling price (a) any expenses relating to the purchase or the sale (b) the cost of improving or maintaining the asset while you have owned it.

Exemption 4: When you have applied all these concessions you are allowed to make a gain of £10,100 in the tax year and pay no capital gains tax. So if you own shares that have gained in value you can spread the sale over several years to reduce or wipe out the tax due.

Exemption 5: Husbands and wives and same sex civil partners can give each other property without any CGT being due. So they can effectively double their annual allowance by making the property jointly owned before the sale.

Exemption 6: Your main residence is exempt from CGT. If you own more than one home you can nominate which is your main home. Married couples must nominate one main residence between them. But couples who are not married or civil partners can have one main residence each.

Exemption 7: If you are selling a home the gain over the last three years of ownership is not counted.

Exemption 8: If you let out a home that has been your main residence in the past you get a further exemption of up to another £40,000 of any gain.

Only 130,000 people paid CGT in 2008/09 – the latest year we have figures for. And despite recent press speculation about CGT being due on a home left empty when an elderly person goes into a care home, a spokesman for HM Revenue & Customs told me that although it was a theoretical possibility “I cannot recall a case where this has happened.”

 


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