What Is Capital Gains Tax?
Capital Gains Tax is a tax on the profit from when you sell (or ‘dispose of’) something (an ‘asset’) that has increased in value.
It is the gain you make that is taxed and not the amount of money you receive.
Some assets are tax-free and you do not have to pay Capital Gains Tax if all your gains in a year are under your tax-free allowance.
Disposing of an asset
Disposing of an asset includes:
- selling it
- giving it away as a gift, or transferring it to someone else
- swapping it for something else
- getting compensation for it – like an insurance payout if it has been lost or destroyed
Calculating Your Total Taxable Gain
Capital gains tax is the amount of tax owed on the profit (aka the capital gain) you make on an investment or asset when you sell it.
It is calculated by subtracting the asset’s original cost or purchase price (subject to any rebasing claims) plus any expenses incurred, from the final sale price along with an associated expenses incurred as a result of the sale.
It is from this figure that any relief claims are then made.
