Capital Gains Tax Advice

CGT is a tax on capital 'gains'. If when you sell or give away an asset it has increased in value, you may be taxable on the 'gain' (profit). This doesn't apply when you sell personal belongings worth £6,000 or less or, in most cases, your main home.

When do I have to pay CGT?

You may have to pay CGT if, for example, you:

1. sell, give away, exchange or otherwise dispose of (cease to own) an asset or part of an asset
2. receive money from an asset – for example compensation for a damaged asset

You don't have to pay CGT on:

1. your car
2. your main home, provided certain conditions are met
3. ISAs or PEPs
4. UK Government gilts (bonds)
5. personal belongings worth £6,000 or less when you sell them
6. betting, lottery or pools winnings
7. money which forms part of your income for income tax purposes

These are some points to bear in mind:

1. if you are married and living together you can transfer assets to your husband or wife without having to pay CGT
2. you can't give assets to your children or others or sell them assets cheaply without having to consider CGT
3. if you make a loss you may be able to make a claim to deduct that loss from other gains; but only if the asset normally attracts CGT – thus you cannot set a loss on selling your car against gains from disposing of other assets
4. if someone dies and leaves their belongings to their beneficiaries, there is no CGT to pay at that time – however if an asset is later disposed of by a beneficiary, any CGT they may have to pay will be based on the difference between the market value at the time of death and the value at the time of disposal

How CGT is worked out

CGT is worked out for each tax year (which runs from 6 April one year to 5 April the following year). It is charged on the total of your taxable gains, after taking into account:

1. certain costs and reliefs that can reduce or defer gains
2. allowable losses you have made on assets to which normally CGT applies
3. the annual exempt (tax-free) amount (the AEA) – this is £8,800 for every individual in the tax year 2006-2007.

Transfers between husband and wife living together are exempt.

CGT rates

How much CGT you pay depends on your overall income. Your total taxable gains are added to your taxable income for the year and treated as the top part of that total. The gains are then charged to CGT at the following rates (2006-2007 tax year):

1. 10 per cent where they fall below the starting rate limit for income tax (£2,150)
2. 20 per cent where they fall between the starting rate and basic rate limits for income tax (£2,150 to £33,300)
3. 40 per cent where they fall above the basic rate limit for income tax (£33,300 and above)

Examples

These very simple examples are for illustrative purposes only. They assume that you have already taken into account all CGT reliefs and the annual exempt amount (AEA) and are only entitled to the basic personal allowance.

Example A

 The taxable gains are treated as the top slice, that is from £19,965 to £29,965. They are therefore all taxed at 20 per cent because the full amount falls within the starting rate and basic rate limits for Income Tax (£2,150 to £33,300, tax year 2006-2007).

Example B

Here the £10,000 taxable gains, which start from £29,965, cross into the higher rate tax threshold. As a result the first £3,335 of the gains is taxed at 20 per cent, while the remaining £6,665 is taxed at 40 per cent because it falls above the basic rate limit for Income Tax.

How you pay CGT

If you've received a Self Assessment tax return, follow the guidance to decide if you need to fill in the capital gains pages as part of that return. The return tells you how to obtain these pages if you need them.

If you don't usually complete a tax return, but wish to report gains or losses, contact your local Tax Office and ask them to send you a return and the relevant pages. If you have CGT to pay you must tell your tax office in writing by 5 October following the tax year. There is a time limit for claiming losses.

Taper Relief

For gains realised after 5 April 1998 by individuals or trustees, indexation allowance is frozen and the gain reduced by a tapering relief. The value of the taper relief depends on whether or not the asset is a business asset, and on the number of complete years the asset has been held after 5 April 1998 (with an additional "bonus" year for non-business assets held on 16 March 1998 ).

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