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Family finances:
Capital gains tax

Capital gains tax is levied on gains arising from the disposal of assets by individuals (including personal representatives of deceased persons and trustees). Capital gains of companies are subject to corporation tax.

Chargeable gains (see Jargon buster box below) can only arise on the disposal of assets. Capital gains tax is payable on chargeable gains after allowing for any reliefs or allowances.

Jargon buster: Chargeable gains

The basic calculation of a chargeable gain is as follows:
Sale proceeds or market value	�12,000
Less: Selling expenses (e.g. legal fees)	� 1,000
Less: Cost	� 3,000
	______
Chargeable gain	� 8,000
This is a very broad outline - issues such as indexation, taper relief, losses and the annual personal exemption would need to be considered in a full calculation.

Not all assets will give rise to a chargeable gain on disposal. The nature of the asset, or the nature of the transaction, may exclude it from a capital gains tax charge. Two common exemptions are:

The sale of your main home (for further information click here)

Transfers between spouses living together

When a capital gain is calculated on the disposal of an asset the cost of the asset is deducted from the sale proceeds to arrive at the gain. There are complex rules for the amounts taken as the cost and sale proceeds and what other expenses may also be deducted.

For disposals before 6 April 1998 the cost of the asset was increased in line with the Retail Prices Index (RPI). This increase was called indexation.

For disposals after 5 April 1998 indexation was replaced by taper relief. Instead of increasing the cost in line with the RPI, the gain is reduced by a fixed percentage depending on how many years you have owned the asset. The percentage is higher for business assets than it is for non-business assets.