What is capital gains tax?
Capital gains tax is the tax that you pay on a gain or profit made by disposing of an asset. It is not the money received when selling an asset that is taxed but the gain that you have made whilst you owned it. So if an asset were bought for £10,000 and you sold it 3 years later for £12,000, the gain would be £2,000.
What assets do capital gains tax apply to?
Capital gains tax applies to the majority of assets. However, some assets are exempt such as your car, personal assets of £6,000 or under, and your main home will usually be exempt from capital gains tax too.
What counts as a disposal?
Gains arise on disposal, not just selling, so you can become subject to capital gains tax in a number of scenarios that you may not expect. For example: gifts to other people; selling inherited assets; transfer of assets on divorce, depending on the date that the transfer is made and whether you are still living together, are all disposals for capital gains purposes and will be subject to capital gains tax.
Making a gift of an asset to a spouse, civil partner or charity will not ordinarily lead to a capital gains tax liability.
What are the capital gains tax rates?
The rates and allowances for capital gains tax are as follows:
|Basic rate tax payers||18%||18%|
|Higher rate tax payers||28%||28%|
|Effective rate after Entrepreneurs’ relief||10%||10%|
|Annual capital gains tax free allowance||£11,100||£11,100|
|Lifetime allowance for Entrepreneurs’ relief *||£10 million||£10 million|
*More information on Entrepreneurs’ relief can be found here: What is Entrepreneurs’ relief?
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