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Capital Gain Tax

Capital Gains Tax is a tax on the profit when you sell or give away something (an ‘asset’) that has increased in value.

It’s the gain you make that is taxed, not the amount of money you receive.

You don’t normally have to pay Capital Gains Tax if you give something away to your spouse or civil partner.

Example: You bought some shares for £2,500 and sold them later for £12,500. This means you made a gain of £10,000 (£12,500 less £2,500). 

If you gave the shares to a friend when they were worth £12,500 instead of selling them, the gain would still be £10,000.

Current rates

The current Capital Gains Tax rates are:

• 18% and 28% for individuals (the rate depends on your total taxable income)
• 28% for trustees or personal representatives of someone who has died
• 10% for gains qualifying for Entrepreneurs’ Relief

The rates will be the same for the 2014 to 2015 tax year.

For gains made on or before 22 June 2010, Capital Gains Tax is charged at a rate of 18%.

When you don’t pay Capital Gains Tax

Capital Gains Tax doesn’t apply to personal belongings worth £6,000 or less.

You won’t usually have to pay it if you sell your main home, because of Private Residence Relief.

There’s also an annual tax-free allowance (the Annual Exempt Amount):

You don’t have to pay Capital Gains Tax if your overall gains are below the allowance for the right tax year.

Other essential information

When you 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

Transferring or selling assets

If you’re married or in a civil partnership and living together you can transfer assets to your partner without paying Capital Gains Tax.

You can’t give assets to others or sell assets for less than they’re worth without considering Capital Gains Tax.

If you make a loss on an asset

If you make a loss on an asset that normally attracts Capital Gains Tax, you can claim for your loss and deduct it from other gains.

When someone dies

If someone dies and leaves their belongings to you:

-          there’s no Capital Gains Tax to pay at that time

-          if you later dispose of an asset, any Capital Gains Tax will be based on the difference between the market value at the time of death and the value at the time of disposal

Capital Gains Tax on property

You don’t usually have to pay Capital Gains Tax if you make a gain from the sale of your only (or main) home. However, you may have to pay Capital Gains Tax if you make a gain on other property or land.

Private Residence Relief

You won’t have to pay Capital Gains Tax when you sell your own home if both of the following apply:

-          it’s been your only or main home for the whole time you’ve owned it

-          you’ve only used it as your home (for example, you haven’t let it out or used it as a business premises)

You get Private Residence Relief automatically. You don’t have to claim it.

You live in more than one property

You can ‘nominate’ one property as your main home if you live in (and own) more than one.

Write to HM Revenue and Customs (HMRC) to tell them which property you want to nominate.

You must make your nomination within 2 years of starting to live in more than 1 home. You must do this whenever the number of homes you live in changes.

Time away from home

You can claim full ‘Private Residence Relief’ if you’ve spent time away from home:

• for up to 1 year when you first bought it - for example, because it needed renovation or you still had to sell your previous home
• for up to 18 months before you sold it - as long as it was your only or main home for some of the time you’ve owned it
• if you had to work away from home for up to 4 years - but you can’t claim the Private Residence Relief on another home you lived in during that period

You must have actually lived in the property as your home.

Restrictions

You might not get the full amount of relief if:

-          the garden and grounds (including the site of the house) are larger than 5,000 square metres

-          you’ve used part of your home only for business (an office you also use as a guest bedroom doesn’t count)

-          you’ve let out all or part of your home (but you may get Letting Relief instead)

-          the main reason you bought the property was to make a profit from selling it again

Work out your capital gain or loss

You work out the gain or loss for each asset separately and then see if Capital Gains Tax is due.

It’s charged on the total of your taxable gains, after taking into account:

-          certain costs and reliefs that can reduce or defer gains

-          unused allowable losses you’ve made on assets to which Capital Gains Tax normally applies

-          the Annual Exempt Amount - if your gains are below £10,900 you don’t have to pay

You work out Capital Gains Tax for each tax year.

What is your Capital Gains Tax rate

1. Work out how much of your income is taxable - by deducting any tax-free allowances and reliefs you’re entitled to.
2. See how much of your Income Tax basic rate band is already being used against your taxable income.
3. Use any remaining basic rate band against gains that qualify for Entrepreneurs’ Relief - these are charged at 10%.
4. If there is any basic rate band left after step 3, use it against your other gains - charged at 18%.
5. Any remaining gains above the basic rate band are charged at 28%.

Example

Your total taxable income is £20,000 and your total gains are £12,000.

Deduct the tax-free allowance of £10,900 from your gains, leaving £1,100 to pay tax on.

You’ve used £20,000 of the basic rate band (£32,010 for the 2013-14 tax year) against your taxable income, so you have £12,010 left.

You have enough of the basic rate band remaining to cover your gains, so you pay Capital Gains Tax at 18% on £1,100.

This means you’ll pay £198 in Capital Gains Tax.

You must:

-          tell HM Revenue and Customs (HMRC) by 5 October 2014 if you think you need to pay Capital Gains Tax but haven’t been asked to complete a 2013 to 2014 tax return

-          send in your completed paper 2013 to 2014 tax return by 31 October 2014

-          file your online 2013 to 2014 tax return by 31 January 2015

-          pay your tax due for 2013 to 2014 by 31 January 2015

If you don’t meet the deadlines, you might have to pay a penalty, surcharge or interest, as well as the tax you owe.