Chargeable gain definition
What is chargeable gain?
Chargeable gain refers to a profitable change in the price of an asset – measured between the time when the assets were purchased, and the time when they are sold. When applied to the financial markets, most profits – whether they are a result of going long or going short – are subject to capital gains tax (CGT).
Certain costs related to the purchase or maintenance of the asset, such as stamp duty, are deducted from the chargeable gain.
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The amount paid through CGT is calculated through the ‘positive difference’ in the asset’s price from when it was purchased, to when it was sold.
You would pay capital gains tax when you sell:
- Personal possessions worth £6,000 or more, excluding your car
- A property that’s not your main home
- Your main home if you’ve let it out, used it for business or if it’s very large
- Shares that are not in an individual savings account (ISA)
- Business assets
What are the tax laws around chargeable gains?
There are a few nuances to whether or not you would pay CGT when you sell an asset that has generated a chargeable gain. For example, if you inherit an asset, inheritance tax is usually paid by the estate of the person who has died. This means you might only need to pay CGT if you sell the asset.
You could also incur chargeable gains on some of your overseas assets. However, you would only pay CGT on the chargeable gains if you claimed the ‘remittance basis’. This means you would pay tax on UK income and gains for the tax year, but you only pay UK capital gains on foreign income and foreign gains if or when they are brought (or 'remitted') to the UK. However, if you are a UK tax resident, you will pay CGT on your worldwide gains regardless of whether you remit the proceeds to the UK.
If you were to sell an asset that had incurred a chargeable gain, and you had an ownership share with someone else, you would only pay CGT on your share of the asset.
Chargeable gains example
As an example, let’s suppose you acquired a stock for £7000 five years ago. In the time since you bought it, it has appreciated in value and is now worth £10,000. In this case, the asset has received a chargeable gain.
If you wanted to sell the asset, you would have to pay capital gains on the positive difference of the chargeable gain in the asset’s price from when you bought it, to when you sell it, minus the transactions cost associated with buying and selling. In this case, you’ve profited by £3000. The amount of CGT you’d pay on this gain would depend on your personal circumstances – taking into account factors such as your taxable income.
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* Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
