Capital gains on investments
What is Capital Gains Tax?
Essentially capital gains are profits you make on 'assets' you've sold. Assets can be all kinds of things - from houses, jewellery, stocks and shares to vintage clothing and antique cars. The HMRC looks to tax you on the 'gain' you make when you sell these assets as Capital Gains Tax (CGT) – essentially they want a percentage of any profit you make.
Two things are important to note about CGT. Firstly it's a tax on the gain you make, not the total amount you sell something for. Secondly, not every gain you make is subject to this tax – there are some exceptions. You only pay CGT when you sell:
- Personal possessions worth £6,000 or more, with the exception of your car.
- Any other property – such as holiday homes, Buy-To Let etc – that are not your main residence.
- Your main home – but this is only subject to CGT on any gains if you’ve let it out, it's used for business or it's more than 5,000 square metres.
- Shares that aren’t in an ISA or a PEP.
- Units in a unit trust.
- Certain bonds (not including Premium Bonds and Qualifying Corporate Bonds).
For full and complete definitions of these descriptions, its best to go direct to the HMRC’s website.
When do I not have to pay CGT?
All UK tax-payers are entitled to an annual tax-free allowance before they pay CGT. Check with the HMRC what the current rate is, but for 2016/17 it is £11,100. This means you can make a gain on any relevant investment, or sale of any personal possession and the first £11,100 of that gain will not be subject to tax.
You usually do not pay tax on any gifts between spouses, civil partners, or when you make a gift to a charity – irrespective of how much you gift. Gifts to others may be still subject to tax, but check with the HMRC.
Any gains made from the following are also not subject to CGT:
- ISAs or PEPs
- UK government gilts (including Premium Bonds)
- Qualifying Corporate Bonds
- betting, lottery or pools winnings
How much is Capital Gains Tax?
From 6 April 2016, basic rate taxpayers rates will depend on the size of the gain, the taxable income and whether the gain is from residential property or other assets. If this amount is less than the basic Income Tax band you’ll pay 10% on your gains (or 18% on residential property). You’ll pay 20% (or 28% on residential property) on any amount above this
For higher rate taxpayers it's 20% on gains from other chargeable assets and 28% on gains from residential property. For details of how to calculate the tax liability you might have, you'll need to visit the HMRC website.
What happens if I didn’t buy the asset?
If you have inherited an asset, or it’s a gift from someone then you won’t be able to calculate the ‘profit’ you’ve made since purchase. The HMRC therefore asks you to use the ‘market value’ for an item, where the market value is defined as:
Finding the market value
|Situation||Use market value at|
|Gifts||Date of gift|
|Assets sold for less than they were worth to help the buyer||Date of sale|
|Inherited assets where you don't know the Inheritance Tax value||Date of death|
|Assets owned before April 1982||31 March 1982|