Capital Gains Tax
What is Capital Gains Tax?
Capital Gains Tax (CGT) is a tax payable on the gain or profit you make when you sell, give away or otherwise dispose of something. It applies to assets that you own, such as shares or property. There is a tax-free allowance and some additional reliefs that may reduce your Capital Gains Tax bill. Sometimes you may have no tax to pay.
Are all assets liable to Capital Gains Tax?
Most assets are liable to Capital Gains Tax when you sell or dispose of them. This applies whether they are in the UK or overseas.
However some assets are exempt, such as your car, personal possessions disposed of for £6,000 or less, and usually your main home.
What else could be affected by Capital Gains Tax?
Many events can lead to a gain or loss, besides the obvious one of selling an asset. A gain may sometimes occur when you least expect it.
Making a gift to a child - or to other people or companies - is a 'disposal' for Capital Gains Tax purposes. You will need to work out if Capital Gains Tax is due. However, making a gift to a spouse, civil partner or charity usually won't lead to Capital Gains Tax.
If you inherit an asset, it's not liable to Capital Gains Tax until you sell or dispose of it. You'll usually need to get a valuation of the asset at the date of death to work out the capital gain or loss.
Divorce, separation or dissolving a civil partnership
When you divorce, separate or dissolve a civil partnership, you may end up transferring assets between you. These are disposals for Capital Gains Tax purposes. Whether you're liable depends on the date of transfer and whether you're living together at the time.
Are there any allowances?
You have an annual tax-free allowance for Capital Gains Tax known as the 'Annual Exempt Amount'.
The Annual Exempt Amount for the tax year 2015-16 is:
- £11,100 for each individual
- £5,550 for most trustees
If your overall gains for the tax year are above the Annual Exempt Amount, you'll pay Capital Gains Tax on the excess.
If your overall gains are below the Annual Exempt Amount, you won't pay Capital Gains Tax.
Your overall gain in 2015-16 is £18,000.
The Annual Exempt Amount is £11,100.
You'll pay Capital Gains Tax on the excess of £6,900 (£18,000 - £11,100).
When do I have to pay Capital Gains Tax?
You pay Capital Gains Tax on any profit you make when you 'dispose' of an asset, which means:
- Selling it
- Giving it away as a gift
- Transferring it to someone else
- Exchanging it for something else
- Getting compensation for it - like an insurance payout if it's been destroyed
You don’t pay Capital Gains Tax on any gains you make from:
- Your car
- Your main home
- Individual Savings Accounts (ISAs) or Personal Equity Plans (PEPs)
- UK government gilts (bonds)
- Personal belongings worth £6,000 or less when you sell them
- Betting, lottery or pools winnings