By Lynne Gowers on 2nd December 2016

Capital Gains Tax – a coffee break guide!

Capital Gains Tax

Capital Gains Tax (CGT) is the least common tax on income, mainly because you need to come into significant financial gain to incur it and it doesn’t apply to things like main homes, cars or lottery wins.

What is it?

CGT is the tax payable on any gain you make when you sell or give away any asset worth more than £6000. The main point to remember is that it is the gain you make which is taxed, not the amount you receive in total.

For example, you buy a painting for £5000 and some years later sell it for £25,000. You will be taxed on the gain of £20,000.

CGT applies to the following:

  • Most personal possessions worth more than £6000 (other than your car)
  • Property that isn’t your main home
  • Your main home if you have let it out, used it for business purposes or if it is very large and has grounds exceeding the permitted area of half a hectare (1.25 acres).
  • Business assets
  • Shares which aren’t in an ISA or PEP

These are known as “chargeable assets”.

When you don’t pay it

You only have to pay Capital Gains Tax on your total gains above an annual tax-free allowance.

If you dispose of an asset by gifting it to your spouse or civil partner, or to charity, it will not normally attract CGT.

You also don’t pay CGT on any gains you make from:

  • ISAs or PEPs
  • UK government gilts and Premium Bonds
  • Betting, lottery or pools winnings

CGT rates 2016/17

For every asset you dispose of in a particular tax year, you need to calculate how much you made when you sold or otherwise disposed of it.
If it is under the annual exemption amount, then you are off the hook for CGT.
The CGT rates were substantially reduced in the recent Autumn Statement, (except for gains on residential property which will continue to be taxed at the old rates) and apply to all other disposals which take place on or after the 6th April 2016.

  • Annual exemption amount – £11,100 for individuals
  • Standard capital gains tax rate – 18% on residential property, 10% on other assets
  • Higher capital gains tax rate – 28% on residential property, 20% on other assets

Further information

Click here for the Boox guide to Capital Gains Tax or visit HMRC

Lynne Gowers Written by Lynne Gowers

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