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What is Capital Gains Tax?
Capital Gains Tax is a tax that is payable on profit gained after the sale or use of any asset, including property, shares, and insurance payouts. Capital Gains Tax is only charged on profit received after a certain amount, and is subject to various forms of tax relief. It is usually payable on the profit made from any property that you sell, but your car or home is exempt from this. Personal possessions sold for less than £6,000 are not subject to Capital Gains Tax.
There are many transfers of property where Capital Gains Tax does apply, for example, if a gift is given to someone who is not your spouse or partner, or if property changes hands during a divorce settlement. Assets or property that you inherit are not subject to Capital Gains Tax unless they are subsequently sold (although you may be charged Inheritance Tax on the original inheritance).
Every tax year you have a personal allowance (£10,600 for individuals in 2011-12 tax year), and Capital Gains Tax is only charged on gains in excess of this figure. There are different rates of Capital Gains Tax payable, depending on how much you have received and your total taxable income. 18% or 28% are the standard lower and higher rates for individuals currently. Any gains qualifying for Entrepreneurs' Relief are charged at 10%.
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