{"id":176561,"date":"2022-10-07T12:14:36","date_gmt":"2022-10-07T11:14:36","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=176561"},"modified":"2025-07-02T00:38:55","modified_gmt":"2025-07-01T23:38:55","slug":"capital-gains-tax","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/corporations\/capital-gains-tax\/","title":{"rendered":"How is Capital Gains Tax Assessed in England?"},"content":{"rendered":"\n

Capital gains tax is a compulsory payment that HMRC places on individuals when they sell certain assets and profit from sales. For individuals, capital gains tax is distinct from income tax. As a business owner, you need to understand your tax obligations as you are legally required to pay the correct amount.<\/span> This article will explain how capital gains tax is assessed for individuals, particularly those like you who own a business. It will also explain how HMRC assesses your company\u2019s liability for capital gains and how it differs from the assessment of an individual person\u2019s capital gains liability.\u00a0<\/span><\/p>\n\n\n\n

Capital vs Income<\/span><\/h2>\n\n\n\n

To understand how HMRC assesses <\/span>your personal capital gains tax<\/span><\/a>, you must understand the difference between capital gains and income gains.<\/span><\/p>\n\n\n\n

The Apple Tree <\/span><\/h3>\n\n\n\n

Imagine you have an apple tree that regularly produces apples, which you sell. The apples are an income asset, and each time you sell one, you receive an income receipt. Likewise, the apple tree is your capital asset. If you were to sell the whole apple tree, the money you would receive would be a capital receipt.\u00a0<\/span><\/p>\n\n\n\n

The <\/span>Pottery Business<\/h3>\n\n\n\n

Imagine you run a pottery business from your house. Each time you receive cash from the sale of the ceramics, this is an income receipt. The kilns and wheels are considered part of your business\u2019 infrastructure as you need them to produce the products that give you an income receipt. If you sell them, you have a capital receipt. <\/span><\/p>\n\n\n\n

If your business sells a service rather than goods \u2014 say, a recruitment business \u2014 the income is the money you receive for placing candidates with your clients. Your capital assets are the database, branding, and IT system you use to source candidates and connect them with your clients. If you sell these assets, you make a capital receipt.\u00a0<\/span><\/p>\n\n\n\n

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For businesses, including <\/span>partnerships<\/a>, sole traders<\/a>, and companies<\/a>, capital assets are what you need to produce the products that you sell for income.<\/p>\n<\/div>\n\n\n\n

For individuals, you can also think of capital assets as valuable property you buy and sell on occasion \u2014 a house, shares in a company, or fine art. Income, however, is your regular wage paid by an employer. Income also includes rental payments your tenant makes to you or any dividends you receive from a company that you own shares in.\u00a0<\/span><\/p>\n\n\n\n

Receipts vs Expenses<\/span><\/h3>\n\n\n\n

Similar to distinguishing between capital receipts and income receipts, there is a legal difference between capital expenses and income expenses. Any money your business spends producing products it sells is an income expense. In the case of a pottery business, this includes the clay, glaze, and energy expenses.\u00a0A capital expense is the purchase of any capital asset, such as your kilns and wheels.\u00a0<\/span><\/p>\n\n\n\n

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Capital Gains Tax <\/span><\/h2>\n\n\n\n

HMRC has different rules for capital gains tax (CGT). Generally, you are only liable for CGT if you have made a gain \u2014 that is, a profit \u2014 on the sale of a capital asset. Not all capital assets attract CGT, including:<\/span><\/p>\n\n\n\n