Capital gains tax explained Capital gains tax allowances and rates

How much profit can you make before you have to pay capital gains tax?

Here’s a summary of the allowances and rates for 2015-16 and 2016-17. 

Capital gains tax allowances and rates: a summary
Year2015-162016-17
Allowance£11,100£11,100
Rate18% or 28%, depending on your tax band10% or 20%, depending on your tax band, except for second homes- where rates remain 18% and 28%

 

Capital gains tax rates

2016 update: The capital gains tax (CGT) rate was significantly cut in the 2016 Budget. From April 2016, those who pay basic-rate income tax will pay CGT at 10% (down from 18%), and higher-rate taxpayers will be charged CGT at 20% (down from 28%). 

If you are a basic-rate taxpayer by virtue of your income, but have made large enough taxable capital gains to push you over the threshold above which income tax is levied at 40% (£32,000 taxable income in 2016-17, £31,765 in 2015-16), you will pay the higher rate of CGT on the portion of gains that takes you over the threshold .  

The previous, higher, rates (18% and 28%) still apply to sales of residential property however (on the sale of second homes). 

You don’t pay capital gains tax on the full amount you make as everyone has a yearly tax-free allowance: £11,100 in 2016-17, £11,100 in 2015-16. In addition, some gains are tax-free (see below).

On your 2015-16 tax return, you must give details if your taxable gains for the year came to more than £11,100 or the total value of the assets you disposed of (other than those which are tax-free) came to more than £44,000. HMRC's online tax return service includes capital gains.You must include your workings for each capital gain or loss that you report.

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 9 months and  18 months to pay. In the 2015 Autumn Statement, however, the Chancellor announced that from 2019 onwards, CGT on property sales would be payable within 30 days.   

Tax free gains

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

Gifts

  • Gifts between husband and wife or registered civil partners. (No tax at the time, but any gain passes to the new owner and may be taxed on a later disposal.)
  • Gifts to charities.

Sale

Gift or sale

  • Private cars.
  • Personal possessions (‘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. More valuable possessions may also be exempt, as long as their useful life is 50 years or less. These are known as 'wasting assets'. An example is a boat. See also CGT and possessions.

Financial

  • Betting, pools and lottery winnings.
  • National Savings & Investments products, Isas, pensions and child trust funds.
  • Proceeds from life insurance policies, unless bought second-hand.
  • Gilts, most corporate and local authority bonds and building society permanent interest-bearing shares (Pibs) and Sharia-compliant equivalents.
  • Shares while held in approved share incentive plans and in some schemes to encourage investment in new and growing businesses.

When you die

  • 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.

 

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Last updated:

April 2016

Updated by:

Ian Robinson

 

Which? Limited (registered in England and Wales number 00677665) is an Introducer Appointed Representative of Which? Financial Services Limited (registered in England and Wales number 07239342). Which? Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited. Registered office: 2 Marylebone Road, London NW1 4DF.