What is Capital Gains Tax (CGT)?
Capital Gains Tax is the tax liable on profits made from selling or disposing of assets.
Capital Gains Tax is only chargeable on any profits realised, not the value of the entire asset.
For example:
You purchase a sculpture for £15,000 and later sell it for £40,000. This represents a gain of £25,000. You pay Capital Gains Tax on £25,000 only.
When is CGT payable?
You will pay Capital Gains Tax or CGT when you sell (dispose of) the following:
- Most personal possessions valued over £6,000 – apart from your vehicle
- Capital Gains Tax Property – Property, which is not your main residence – unless, you have let your property, have used it for business purposes or if it is very large.
- On any shares purchased which are not in the form of an Individual Savings Account (ISA) or Personal Equity Plan (PEP)
- On any business assets
These are referred to as ‘chargeable assets’.
Depending on the type of asset, you may be able to reduce any tax you pay by claiming a relief.
Jointly owned assets are also subject to Capital Gain Tax. In this case, you pay CGT on your share of any profits.
When is CGT not payable?
- Capital Gains Tax is payable only on your total gains over and above your annual tax-free allowance, also referred to as the Annual Exempt Amount (AEA).
Currently the AEA is:
- £12,000, or;
- £6,000 for trusts
Tax is normally exempt on gifts to your spouse, civil partner or a charity.
- CGT is not payable on some assets, including any gains you make from:
- ISAs or PEPs
- UK government gilts and Premium Bonds
- betting, lottery or pools winnings
You may also be able to reduce your tax bill by deducting losses or claiming reliefs. This will depend on the type of asset.
Paying Tax after an inheritance
When you inherit an asset, IHT is normally paid by the estate of the person who has died. In this instance, Capital Gains Tax is only chargeable if your later dispose of one of these inherited assets.
Overseas Assets
You may have to pay Capital Gains Tax if your asset is located outside the UK. Special rules apply in this instance if you are a UK resident but not domiciled. In this case, you can claim the remittance basis.
There are special rules if you are a UK resident but not ‘domiciled’ and claim the ‘remittance basis’.
If you live abroad
You will still have to pay tax on any gains made on the sale/disposal, property, or land in the UK, even if you are classed as non-resident for tax purposes. However, you do not pay Capital Gains Tax on other UK assets, for example shares in UK companies, unless you return to the UK within 5 years of leaving.
Capital Gains Tax-free assets
Some assets are tax-free. You also do not have to pay Capital Gains Tax if all your gains in a year are under your tax-free allowance.
Disposing of an asset
Disposing of an asset includes:
- selling it
- giving it away as a gift, or transferring it to someone else
- swapping it for something else
- getting compensation for it – like an insurance pay-out if it’s been lost or destroyed
Complexity of CGT
As with most tax issues the complexity of CGT can be very confusing for the novice. There are also penalties if you calculate your liabilities incorrectly. We therefore recommend you seek professional advice to ensure you remain compliant on all areas of Capital Gains Tax whilst also maximising on your CGT tax opportunities.
Capital Gains Tax UK – How we can help
Our personal tax accountants and tax advisors are very experienced in the area of Capital Gains Tax. Book a free consultation today for more help with CGT.
