For an individual, the primary capital asset is their home and any future homes they may own. A person's main residence is always exempt from capital gains tax, however it will be applied to any additional home, wherever the property is in the world. In order to reduce the capital gains tax bill, taper relief was introduced in 1998, which replaced indexation allowance. By holding a second home for at least 3 years the capital gains tax will begin falling, and steadily decrease every year. After 10 years or more, a higher rate taxpayer would pay 24% on any gains rather than 40% if this property was sold after one year. Capital gains tax also gives an allowance of £7,900 to each individual. It is therefore beneficial for married couples to have joint ownership, so their allowances can be fully utilised.
Chattels and wasting assets.
- Chattel.
A chattel is a tangible moveable property, which can be touched moved and seen. As long as the sale of a chattel does not exceed £6000 the gain will not be subject to capital gains tax. Examples of chattels are antiques and works of art. These cannot be considered as wasting assets as they are still useful after 50 years. .
- Wasting Asset.
A wasting asset is an asset with a predictable useful life of 50 years or less at the time of acquisition. The asset will be exempt from capital gains tax as long as it is sold within 50 years of purchase. An example of a wasting asset is wine and spirits. Alcohol can take years to mature, however only a select few wines will be unspoiled after 50 years.
Tax efficient investments.
- Enterprise investment scheme (EIS).
This scheme was introduced in 1994 and replaced the business expansion scheme. It is appropriate to investors who wish to invest in higher risk smaller companies. Up to £150,000 can be invested into a qualifying company per tax year with relief being given at 20%, as a tax reducer. Eligible shares are exempt from capital gains tax once they are held for 3 years.
