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Capital gains tax allowances and rates

By Ian Robinson

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Capital gains tax allowances and rates

You can earn thousands of pounds tax-free when you sell something for a profit. Find out about capital gains tax allowances and the CGT rates you pay in 2017-18.  

Video transcript

Capital gains tax has to be paid on items which are sold at a substantial profit. Antiques, shares, precious metals and second homes could all be subject to the tax if you make enough money from them. But working out exactly how much tax you need to pay, can sometimes be tricky. Capital gains tax only needs to be paid if you make a certain amount of profit from the sale of your possessions in any given tax year.

The amount of tax for your profit you can make in each year is set by the government. You only pay tax when the amount you exceed this figure by. In most cases, your profit equals the amount you sold an item for minus the amount you paid for it. For example, if you sold two holiday homes at a combined profit of �20,000 during the 2013-14 tax year, you would only have to pay tax on the excess of �9,100?

The rate of capital gains tax you pay on that figure will depend on your overall earnings. In 2013/14, basic rate tax payers would owe 18% of this amount, whilst higher rate taxpayers would be charged 28%. But what if you sold a rental property at a loss of �200,000 that year? Well, you can offset that against your annual gains.

I mean there's even less money you need to pay tax on and there's more. Suppose you've made losses on anything you sold in previous years. Maybe you're an entrepreneur or a personal representative to somebody who's died. How much tax would you pay then? Find out more in our detailed capital gains tax guide on which.co.uk.

 

Capital gains tax (CGT) is a tax on the increase in value of your possessions - such as a second home, antiques or shares - during the time you have owned them. 

Any tax is due when you dispose of them, usually by selling them or giving them away. 

You need to have made a certain amount of profit on your items to be taxed on them. This amount depends on whether you're a basic-rate or higher-rate taxpayer, and what the current tax-free allowance is for the tax year. Find out more about tax rates. 

Typical investments that you might have to pay capital gains on include:

  • a second property
  • shares
  • the sale of a business
  • valuables such as jewellery, antiques and art

You don't have to pay CGT if you sell a car, or if you make a profit on selling your own home. 

Capital gains tax-free allowance 2016 and 2017

You can make a certain amount in capital gains each year before any tax is due. The table below explains your CGT allowance for the tax years 2016-17 and 2017-18. 

If your assets are owned jointly with your spouse or civil partner, you can use both of your allowances, which can effectively double the amount you can make before CGT is due. 

However, if you choose to transfer any of your assets to your partner, this must be a genuine outright gift. This means that the ownership of the share is transferred and your partner can choose what they do with their share. 

The amount you can get in couple's allowance is also included below. 

Capital gains tax allowances: a summary
Year 2016-17 2017-18
Allowance for an individual £11,100 £11,300
 
Couple's allowance (note you can only use this if you are married or in a civil partnership) £22,200

£22,600

Capital gains tax (CGT) rates 2017-18

Since April 2016, two different rates of CGT have been charged, which vary depending on the asset you've made a profit on. 

To work out your rate of CGT you need to first know your tax band. 

Find out more: which tax band are you - find out your tax band thresholds based on your income

If you have made a capital gain on an investment that isn't a property:

  • basic-rate taxpayers pay CGT at 10%
  • higher-rate taxpayers and additional-rate taxpayers pay CGT at 20%

If you have made a capital gain on a second home or buy-to-let investment:

  • basic-rate taxpayers pay CGT at 18%
  • higher-rate and additional-rate taxpayers pay CGT at 28%

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How to work out your capital gains tax rate

If your income makes you a basic-rate (20%) taxpayer but you have made large enough capital gains to push you into a higher-rate tax bracket, you will pay the higher rate of CGT on the amount that takes you over the threshold. 

It works like this:

  1. Work out how much taxable income you've earned from your salary, pension or other type of income. 
  2. You can do this by deducting your tax-free personal allowance (£11,500 in 2017-18) from your total income.
  3. Calculate your taxable capital gain by deducting the tax-free CGT allowance (£11,300 in 2017-18) from your profits
  4. Add your taxable capital gain to your taxable income.

For a basic-rate taxpayer, the maximum taxable income you can earn is £33,500 in 2017-18. This is the higher-rate threshold (£45,000) minus the tax-free personal allowance (£11,500).

If your taxable income and your taxable capital gain added together is less than £33,500, you’ll pay basic-rate CGT (10% on most investments, 18% on second homes).

If the two figures added together put you over a higher tax threshold, you’ll pay the basic-rate (10% or 18%) on the part up to the threshold, and the higher rate (20% or 28% for second homes) on the rest.

How to calculate capital gains tax: an example

This can be complicated to work out, so we’ve put together an example.

Say, you earn £40,000 a year and sell some shares for £25,000, after buying them for £5,000 two years ago. This gives you a profit of £20,000. 

If you're not sure what your profit is, see our guide on how to calculate your capital gains tax

  • Your total taxable income is £40,000 - £11,500 = £28,500
  • Your taxable gain is £20,000 - £11,300 = £8,700
  • Your taxable income and taxable gain total = £37,200
  • The first £5,000 of your profit (£33,500 - £28,500) is taxed at 10%
  • The final £3,700 of profit from the shares will be charged at 20%

So your total CGT bill is:

£500 (10% of £5,000) plus £740 (20% of £3,700) = £1,240.

When do you have to pay your capital gains tax in 2017-18

You must put any capital gains onto your tax return. You can also report them in the Report Capital Gains Tax online service from the government.

If you don’t usually need to fill in a tax return, reporting your capital gains through the online service is enough. But if you usually do fill in one, you must fill your capital gains onto your tax return too, regardless of if you’ve also used the online service.  

You must include how you have worked out each capital gain. If you have lost money through an investment (for example, selling a second home at a loss) you should also include this on your tax return.

Under current rules, any CGT due on the sale of property is payable by 31 January after the end of the tax year in which the sale occurred. Depending on the date of the sale, this can give you between nine months and 18 months to pay. 

From April 2019 onwards, CGT on property sales is payable within 30 days.   

Tax-free gains

You don’t have to pay tax on all capital gains. Those listed below are tax-free:

Capital gains tax on cars

  • the sale or gifting of private cars - i.e. not for cars you use for business

Capital gains tax on gifts to spouses or charity

  • gifts between husband and wife or registered civil partners, although tax may be due later if the new owner sells the item
  • gifts to charities

Capital gains tax on property sales

  • The sale of your only or main home
  • Landlords are normally liable for CGT when they sell a rental property.
  • But if it has been your main home at some time in the past, you can claim tax relief for the last eighteen months of ownership

Capital gains tax on personal possessions

  • personal possessions (sometimes called personal ‘chattels’) such as antiques, worth no more than £6,000.  
  • If you sell a set (of chairs, for example), the £6,000 limit applies to the set, not each item.
  • possessions with a useful life of 50 years or less ( known as  'wasting assets'), for example a boat. 
  • Find out more in our CGT and possessions guide

Capital gains tax (CGT) on financial products

  • betting, pools and lottery winnings
  • Isas or Peps
  • UK government gilts and premium bonds
  • National Savings & Investments products pensions and child trust funds
  • proceeds from life insurance policies, unless bought second-hand
  • most corporate and local authority bonds you’ve owned directly (rather than holding them in an investment fund)
  • Building society permanent interest-bearing shares (Pibs) and Sharia-compliant equivalents
  • shares while held in approved share incentive plans through your employment 
  • some schemes to encourage investment in new and growing businesses

Capital gains tax (CGT) and inheritance

  • whatever you leave on death (though inheritance tax may be payable instead).

Get a personalised answer to your tax questions 

The Which? Money Helpline offers independent one-to-one guidance on all kinds of tax queries, including those surrounding capital gains tax. If you're not a Which? member and you'd like to get unlimited access to the helpline, you can try Which? Money for two months for £1.

  • Last updated: June 2017
  • Updated by: Tom Wilson
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