If you sell any of the assets that you own or give away any of your assets, you will normally be receiving a profit from that transaction, though you may occur a loss on such transactions on occasions. If you have profited from the transaction, you are liable to pay tax to the government of the United Kingdom. However, the tax amount is usually computed on the gain that you have made and not on the total value of the transaction. The following transactions are liable for tax, when you dispose of any asset or assets that you own.
Transactions Liable for Tax
• When you sell an asset
• When you give it away to someone as a gift but any gift to your spouse or your civil partner is exempted from tax computation
• When you transfer an asset to another person
• When you exchange an asset for another asset
• When you obtain compensation for an asset, such as an insurance claim received for destruction of an asset
Exemptions from Tax
However, the tax laws exempt gains from your car, your main home, your individual savings account (ISA), your personal equity plan (PEP), UK government bonds that you own, your personal belongings if they are worth £6,000 or lesser than that amount at the time of sale or disposal or your winnings from pools, lottery and betting.
An Example of How Taxes Are Applicable and Computed
You had bought shares worth £5,000 and later sold them for £15,000. The gains made by you in this transaction are £10,000, i.e., £15,000 less £5,000. You will be liable to pay tax on £10,000, the actual gain and not on £15,000, the value of the transaction. Even if you gave away the shares to one of your friends and if the shares were worth £15,000 at the time of giving away the shares, then the tax would still be applicable for £10,000 as your gain.
The Current Tax Rate on Gains in the United Kingdom
• 18% minimum and 28% maximum for individuals, depending on their total taxable income
• 28% for trustees or other personal representatives of a deceased person
• 10% gains that quality under 'Entrepreneurs' Relief'
You are also eligible for annual tax-free allowance, which varies for individuals and trustees from year to year. You should approach an experienced tax consultant for exact information on all your tax issues on gains and losses.