What is Capital Gains Tax?
Definition of Capital Gains Tax
Capital Gains Tax is a tax that can be payable if you sell certain large items of equipment.
Capital Gains Tax might be due on your personal assets and if you're a sole trader or partner in a partnership, it might also be due on assets owned by your business.
Some assets are exempt from Capital Gains Tax. These include your main home, a personal car, and most assets worth under £6,000.
You'll usually pay Capital Gains Tax on the difference between the amount you sell an asset for and how much you originally bought it for.
Everyone gets an annual exemption to use against any taxable gains up to a certain amount. In 2015/16 that amount is £11,100. This means that you'd only have to pay Capital Gains Tax on gains above £11,100. If you make a gain of £3,000 on selling a painting, for example, and no other gains in the tax year, you'd have nothing to pay because £3,000 is below the annual exemption.
For more information, take a look at HMRC's guidance on Capital Gains Tax for businesses.
Got questions? Ask Emily!
FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.