Capital Gains Tax (CGT) is the tax you pay if you make a profit on the sale or disposal of an asset.
For example if you:
- Transfer the ownership
- Exchange the assets for something else
- Make a gift of the asset to someone
- Receive compensation for the loss of the asset
You might have to pay capital gains tax. The amount of tax you might have to pay will be based on the market value of the asset, not the amount you received for it.
For example: Fred bought an investment property for £100,000. He later gifted it to his two children. Fred did not receive any money for the property, but the value at the date of the gift away was £250,000.
On this basis the gain would be £150,000 (£250,000 minus £100,000).
Capital gains tax exemption
Most assets are subject to capital gains tax when you either sell of dispose of them. However some assets are exempt.
Personal possessions that are sold or gifted for less than £6,000 are exempt. Your main home is usually exempt as well.
If you own assets abroad and you are resident for tax in the UK, you might also be liable to tax on the sale or disposal of these assets abroad.
Annual Exempt Allowance
Each year you get an annual CGT allowance. This helps to reduce the amount of Capital gains tax you might pay.
Capital gains tax rate The rate of capital gains tax you might pay will depend on your income and the total amount of gain you have made for each tax year. Go to our CGT rates section for more details.
If you make a gift to someone else this would be classed as a disposal of the asset. You should work out if capital gains tax is due.
A gift to your spouse, civil partner or a charity should not be classed as a disposal for capital gains tax.
If you are lucky enough to inherit an asset you might have to pay capital gains tax when you sell or dispose of it. You should value of the asset at the date of death. You will then be able to work out the capital gain or loss that has been made.
Divorce and separation
If you have to separate, divorce or dissolve a civil partnership, it might be necessary to transfer assets between the two parties. This would be treated as a disposal for capital gains tax purposes. Any tax will depended on the date the assets are transferred and whether you are living together at the time.
If you would like to find out more about our capital gains tax advice service please contact us.
HMRC also offer information booklets on CGT. Please click the following link to go to the HMRC website . Capital Gains Tax
There are some aspects of tax planning advice that are not regulated by the Financial Services Authority.