Capital Gains Tax (CGT) is a tax on the profit or gain you make when you sell or ‘dispose of’ an asset.
You usually dispose of an asset when you cease to own it – for example if you:
- sell it
- give it away as a gift
- transfer it to someone else
- exchange it for something else
- receive compensation for it – e.g. you receive an insurance pay-out when an asset’s been destroyed
It’s the gain you make – not the amount of money you receive for the asset – that’s taxed.
Example
You bought some shares for £2,500 in June 1990.
You sell them for £12,500 in May 2008.
You’ve made a gain of £10,000 (£12,500 less £2,500).
When do I have to pay Capital Gains Tax?
You are liable to pay CGT if you sell, give away exchange or otherwise dispose of an asset.
Some assets aren’t liable to Capital Gains Tax at all because they’re exempt. These include:
- your car
- your main home
- personal possessions worth up to £6,000 each, such as jewellery, paintings or antiques
- stocks and shares you hold in tax-free investment savings accounts, such as ISAs and PEPs
- UK government or ‘gilt-edged’ securities e.g. National Savings Certificates, Premium Bonds and loan stock issued by the Treasury
- betting, lottery or pools winnings
Can I transfer assets to my spouses/civil partner?
Yes, though CGT may become a liability to your spouse/partner if there is a subsequent sale of the asset.
What happens if I inherit or am given an asset without payment?
Although assets are not subject to CGT when the owner dies, if you inherit an asset, which you later sell you may be required to pay Capital Gains Tax.
What happens if I give away an asset or sell it for less than its full value?
If you dispose of an asset in this way you may still be liable for Capital Gains Tax based on the difference between the value at the time you disposed of the item and the value when you acquired it.
Can I offset Capital Gains Tax against any allowances or losses?
Capital Gains Tax liability is calculated on gains and losses within any specific tax year (6 April to 5 April the following year) and is payable on the total of your taxable gains after the deduction of allowances and allowable losses. These will include your annual exemption allowance (AEA). You are allowed to make some gains free of tax liability.
In addition in some circumstances if you make a loss when disposing of one asset that attracts Capital Gains Tax, you may be able to offset this loss against gains made from other assets on which Capital Gains Tax is payable.
Tax relief could be provided in respect of costs incurred in disposing of an asset and there are some allowances made for certain types of investments. Seeking professional advice is likely to be necessary to make sure you can take advantage of any tax relief available.
What is the rate of tax paid on Capital Gains?
For current tax rates check the HMRC website below.
How is Capital Gains Tax collected?
Payment of Capital Gains Tax is due on January 31 in the year following the end of the tax year in which the gain occurred. CGT is collected through the HMRC. Capital Gains should be declared in your annual self-assessment tax return. If you think you may have gains that are subject to CGT but don’t normally receive a self-assessment tax return form, but you should contact your tax office.
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