There are two parallel tax regimes in the United Kingdom for businesses and individuals. One tax regime applies to income (or sales revenue), and the other applies to gains arising from the sale of capital assets. Any money you or your business obtains from selling a capital asset is not subject to the income tax regime. Instead, if the gain is taxable, it will be a chargeable gain. If you or your business receives money subject to tax, but it is not an income receipt, it will be a chargeable gain. This article explains:<\/p>\n\n\n\n
If you receive money from a sale, the law will ask if the money qualifies as an income receipt or a capital receipt. The answer determines which tax regime will govern the receipt. <\/p>\n\n\n\n
Lawyers and accountants often use the fruit tree analogy to explain the difference between income and capital assets. Say you own a pear tree, and you sell pears to your neighbour. Any money you make from selling a pear is akin to income because you regularly sell a recurring product. This is an income asset.<\/p>\n \n
On the other hand, the tree itself is a capital asset. While you do not sell the pear tree every time you sell a pear, you need the tree to produce the pears you sell. If you sell the pear tree, the money you receive is a capital receipt. Therefore, if the transaction is subject to the chargeable gain tax regime.<\/p>\n
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HM Revenue & Customs (HMRC)<\/a> will only asses tax under a chargeable gain if:<\/p>\n\n\n\n If you meet all three conditions, the law will assess different kinds of chargeable gains depending on the circumstances of the transaction. For instance, capital gains tax (CGT) is a particular chargeable gain. Not all chargeable gains will be capital gains tax, though all capital gains taxes are a kind of chargeable gains. <\/p>\n\n\n\n HMRC assess chargeable gains differently depending on whether an individual, non-corporate, or corporate business was involved in the transaction. <\/p>\n\n\n\n Some common examples of capital assets include:<\/p>\n\n\n\n Additionally, intangible items like branding, intellectual property, and goodwill are capital assets. In some cases, HMRC will treat certain capital assets as exempt from chargeable gains. The most common example is your primary residential property. You do not pay capital gains when you sell your home. <\/p>\n\n\n\n A disposal includes the sale, gift, transfer, or destruction of a capital asset. Suppose you own a capital asset and transfer ownership to another person. In that case, the law will almost certainly consider it a disposal regardless if you received any money or how much you received.<\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n\n
Tax Liabilities of Individuals and Businesses <\/h3>\n\n\n\n
Individuals<\/strong><\/td> In most cases, if you are a UK taxpayer, HMRC will consider you a qualifying individual. However, provided you meet the other two conditions outlined above, HMRC will assess the chargeable gain as capital gains tax (CGT).
In most cases, HMRC assesses CGT based on the taxable difference between the price you paid for the capital asset and the price you sold it for. HMRC may tax this difference at 10% or 20%.<\/td><\/tr>Companies or Other Corporate Bodies<\/strong><\/td> Suppose HMRC considers a company (or other corporate body) to be a qualifying entity for tax purposes. In that case, it will tax any chargeable gain under the rules for corporation tax, provided you meet the other two conditions.
Consequently, HMRC will factor in any gains your company makes from selling a capital asset into your company\u2019s total taxable profit (TTP). TTP also includes money you have made from income sales. As a result, HMRC taxes the total amount at the corporate tax rate, currently 19%.
HMRC considers a qualifying company to be any business incorporated in the UK.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nCapital Assets<\/h3>\n\n\n\n
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Disposals <\/h3>\n\n\n\n