The guidance regarding when you have to pay CGT in the UK is often updated to reflect the changes to our financial landscape – the Treasury recently clarified its stance on cryptocurrencies, for example – so it’s a good idea to keep on top of the rules, and seek professional tax advice if you need it.
Below, we run through the basics of CGT, including when you have to pay it, and how much it charges.
When do I have to pay capital gains tax?
You have to pay CGT on a wide range of items when you sell them. These are known as “chargeable assets”.
These can include personal possessions worth £6,000 or more (excluding your car), shares that are not held in an Individual Savings Account (ISA) or Personal Equity Plan (PEP), and business assets.
Some cryptoassets are now also chargeable, but you can check with HMRC whether you need to pay, and in some cases you may be able to reduce the bill by claiming relief.
Property is also eligible in certain instances, but in most cases you won’t have to pay the tax when you sell your main home, as the rules target second homes and buy-to-let properties. If the house is not your main residence, has been let out, used for business purposes, or is very large, you will likely need to pay CGT.
What are the exemptions to capital gains tax?
You do not have to pay CGT on your total gains if they fall within the annual tax-free allowance. The current threshold known as the Annual Exempt Amount, is £6,000 for individuals and £3,000 for trusts.
Additionally, you usually do not pay tax on gifts made to your spouse, civil partner, or a charity.
However if your spouse or civil partner later sells the asset, they may be liable to pay tax on any gain. The calculation of their gain is based on the difference in value between when you first owned the asset and when they disposed of it.
Certain assets are exempt from CGT. These include gains made from investments in ISAs or PEPs, UK government gilts, Premium Bonds, as well as winnings from betting, lotteries, or pools.
How much is capital gains tax?
How much CGT you pay will be based on your income tax rate.
For higher or additional rate taxpayers, the amount you pay is relatively straightforward. CGT is charged at 28 per cent on gains from residential property, and 20 per cent on gains from other chargeable assets.
It gets a bit more complicated for basic rate taxpayers. To calculate how much you owe, you should first work out your taxable income, which is your income minus your personal allowance – currently set at £12,750 for the current tax year – and any other income tax reliefs you are entitled to, such as business expenses for the self-employed.
Next you work out your total taxable gains, which is the amount of profit you made selling any chargeable assets. You can then deduct the tax-free allowance from that figure, which for most people will be £6,000.
If the resulting amount is within the basic income tax band you’ll pay 10 per cent on your gains (or 18 per cent on residential property). Any amount above the basic rate will follow the rules for higher and additional rate payers, at 20 per cent (or 28 per cent on residential property).
