Anyone who sells assets (shares, land, buildings, parts of a business, jewellery) is liable to pay Capital Gains Tax.
Introduced by the Labour Goverment of Harold Wilson in 1965, CGT was set at 30% - later increased to 40% by the Conservatives in 1985 and reduced to 18% by Labour in 2008.
When the Tories increased the CGT rate, they also introduced taper relief to help long-term investment by reducing the taxable rate depending upon how long the investment had been held - effectively taxing quick short-term gains more than long-term gains.
Currently everyone has a £10,100 tax free CGT annual allowance. Your gains are calculated by taking what you paid for an asset away from what you sold it for.
2010 Conservative-Lib Dems Proposals for Capital Gains Tax
The new government wants to tax shares (inc. company saving schemes) , other 'non business assets' and second homes at rates more in parity with income tax rates - this could mean quite an increase in CGT liability when coupled with plans to cut the annual tax free CGT allowance to £2,000.
The plans should be a cause for concern for anyone who sells an investment or asset - as you are only liable for CGT once the asset has been disposed of - those who do not sell pay no tax, for now - but once these assets are sold, these investments could be liable for a higher tax bill than expected.
- If you utilise your annual ISA allowance you can reduce the effect - profits on assets within the ISA are CGT exempt.
- The same applies for assets within a pension - however, assets in pensions are tied up until at least age 55 - when a minimum three quarters must be used for income.