CGT is a tax on capital "gains". If when you sell or give away an asset it has increased in value, you may be taxable on the gain (profit). This doesn`t apply when you sell personal belongings worth £6,000 or less or, in most cases, your main home.
If you have sold, or you are thinking of selling an asset which you think may be liable to CGT, there are a number of questions that you must ask. We have a separate section for each of these - please use the links below :
You may have to pay CGT if, for example, you:
- sell, give away, exchange or otherwise dispose of (cease to own) an asset or part of an asset
- receive money from an asset - for example compensation for a damaged asset
You don't have to pay CGT on:
- your car
- your main home, provided certain conditions are met
- ISAs or PEPs
- UK Government gilts (bonds)
- personal belongings worth £6,000 or less when you sell them
- betting, lottery or pools winnings
- money which forms part of your income for income tax purposes
These are some points to bear in mind:
- if you are married or in a civil partnership and living together you can transfer assets to your husband, wife or civil partner without having to pay CGT
- you can't give assets to your children or others or sell them assets cheaply without having to consider CGT
- if you make a loss you may be able to make a claim to deduct that loss from other gains; but only if the asset normally attracts CGT - thus you cannot set a loss on selling your car against gains from disposing of other assets
- if someone dies and leaves their belongings to their beneficiaries, there is no CGT to pay at that time. However, if an asset is later disposed of by a beneficiary, any CGT they may have to pay will be based on the difference between the market value at the time of death and the value at the time of disposal.
Gains and losses are calculated separately for each asset held. The gain (or loss) is calculated by deducting from the sale proceeds, or in some cases, the market value at the time of disposal, the following amounts:
- Original cost and incidental costs of acquisition
- Capital expenses that have increased the value of the asset
- Incidental costs of disposal
The first £10,600 of the net chargeable gain is exempt (from April 2011) and the balance of the gain is chargeable at a flat rate.
There are other reliefs such as Entrepreneurs Relief that may either reduce the capital gains tax liability or defer it.
After deducting the annual exemption of £10,600 from the total net chargeable gains and any capital losses arising in the same year, the balance is taxed at 18% for gains that fall with the individuals unused basic rate band (currently £34,370) and then 28% thereafter.
The only exception is where an individual qualifies for the entrepreneur´s relief in which case the gain or part of the gain could be charged at 10%.
The capital gains tax due is paid under the self assessment system and the same dates apply as for income tax. The only difference is that payments on account are not calculated on capitals gains tax liability and the full amount is payable in full by 31 January following the end of the tax year.