Below are some frequently asked questions regarding Capital Gains Tax that all investors should know the answers to.

What is Capital Gains tax?
Capital Gains tax is the tax you pay when you sell an asset for a profit. The amount you pay depends of the amount of profit you make and the tax band you are currently in.

What classes as an asset?
An asset can be anything you invest in which then increases in value. So for example stocks and shares, property, art work, jewellery, second homes and valuable antiques can all class as assets and will all be liable for Capital Gains Tax.

Is there anything exempt from taxation?
Yes there are a number of things which are exempt and these include your home, your private car or other private vehicle, movable objects with a value of less than £6000 and cash which is held as sterling currency.

How much will I have to pay?
As of April 2008 the taxation system for Capital Gains Tax has become a lot less complicated. As it stands each person in the UK has an annual exemption amount of nearly £10,000 and so if a taxable gain falls below this figure it will remain tax free. Thus if you buy shares for £5000 and five years later you sell them for £14,500 then the profit you make will be exempt from Capital Gains Tax. If your profit is above £10,000 though then the excess will be taxed at a rate of 18% (figures correct as of 2008)and this can really take a big slice of any profits you work hard to achieve.

How can I reduce the amount I pay?
Legally married couples can divide assets such as shares between themselves so the profit they each make doesn’t exceed their £10,000 individual Capital Gains tax exemption. In addition, a Taper Relief scheme means that the longer you hold onto an asset the less tax you are required to pay on the profit. So if you hold onto your investment for over ten years you only have to pay tax on 60% of the gain.

There are numerous other ways to keep the cost of Capital Gains tax down and it might be worth talking to a qualified accountant for more information.

Can I complete my own Capital Gains Tax return myself?
You can but the world of tax is quite complex and Capital Gains tax is no different. A good accountant can probably find exemptions, reliefs and allowances that you don’t even know about and this can easily save you a few thousand pounds where big profits are involved.

Where can I find more information?
The best place to find more information is on HM Revenues & Customs website. Here you can find out what is exempt from taxation and what isn’t, how to calculate your tax and the reliefs and allowances that are available.