Asset Management and Tax
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When it comes to the tax on asset management, it is obviously dependent on your other circumstances as well. The key tax area in the investment world for those who have made investments for savings and growth purposes rather than month-to-month income purposes is Capital Gains Tax. Capital Gains Tax (often referred to simply as CGT) is a form of tax paid on the increase in value of certain investments and property during the period of time in which you have owned them. The most common Capital Gains Tax issue for the general public is on second homes but more relevantly for us it is also relevant to the sale of any investments such as shares. It can also include things such as antiques and other similar investment items.
Up until 2010, the Capital Gains Tax rate was set at 18% for everyone but new government legislation has introduced two types. The first is for the majority of UK taxpayers who will continue to pay the 18% but the second is for those who pay the higher tax rate and they are charged an additional 10% meaning they pay a total of 28% Capital Gains Tax.
A lower rate taxpayer is required to earn under the £35,000 a year threshold but on occasion they have made a large enough gain through investments such as the sale of their second home, shares etc to push them above this threshold. In this circumstance, they are required to pay the higher rate income tax but only on the amount over the threshold. For example, if an individual is earning £30,000 but they make a profit of £20,000 from an investment in any company either publicly listed or private, they will be £15,000 over the £35,000 limit. They are not required to pay the higher rate of 28% on all of the £20,000 but only on the £15,000 over the limit they are.
Regardless of your tax rate, you do not have to pay the Capital Gains Tax rate on all of the amount that you receive as all taxpayers allowed a tax-free allowance each year. At the moment this tax-free allowance for Capital Gains Tax stands at £10,100 per tax year but this is set to increase in the 2011-12 tax year to £10,600. This could give you a potential saving of as much as £1,900 on tax so it’s important you are aware of what tax you do and don’t need to make.
Figuring out whether or not you have made a capital gain is quite an easy process. The first step is to subtract the initial amount that you have paid for the item from the amount that you received when you sold it. Then subtract any additional “allowable” expenses such as the costs of selling the property/shares etc or the stamp duty paid. If the amount you are left with is a plus of over the £10,100 tax-free allowance, you are required to pay Capital Gains Tax on the amount above this threshold
Up until 2010, the Capital Gains Tax rate was set at 18% for everyone but new government legislation has introduced two types. The first is for the majority of UK taxpayers who will continue to pay the 18% but the second is for those who pay the higher tax rate and they are charged an additional 10% meaning they pay a total of 28% Capital Gains Tax.
A lower rate taxpayer is required to earn under the £35,000 a year threshold but on occasion they have made a large enough gain through investments such as the sale of their second home, shares etc to push them above this threshold. In this circumstance, they are required to pay the higher rate income tax but only on the amount over the threshold. For example, if an individual is earning £30,000 but they make a profit of £20,000 from an investment in any company either publicly listed or private, they will be £15,000 over the £35,000 limit. They are not required to pay the higher rate of 28% on all of the £20,000 but only on the £15,000 over the limit they are.
Regardless of your tax rate, you do not have to pay the Capital Gains Tax rate on all of the amount that you receive as all taxpayers allowed a tax-free allowance each year. At the moment this tax-free allowance for Capital Gains Tax stands at £10,100 per tax year but this is set to increase in the 2011-12 tax year to £10,600. This could give you a potential saving of as much as £1,900 on tax so it’s important you are aware of what tax you do and don’t need to make.
Figuring out whether or not you have made a capital gain is quite an easy process. The first step is to subtract the initial amount that you have paid for the item from the amount that you received when you sold it. Then subtract any additional “allowable” expenses such as the costs of selling the property/shares etc or the stamp duty paid. If the amount you are left with is a plus of over the £10,100 tax-free allowance, you are required to pay Capital Gains Tax on the amount above this threshold
