Capital gains tax explained Capital gains tax allowances and rates
What is capital gains tax?
Capital gains tax (CGT) is a tax on the increase in value of 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.
Here’s a summary of the allowances and rates. They’re explained further, below.
|Capital gains tax allowances and rates: a summary|
|Rate||18% or 28%, depending on your tax band||18% or 28%, depending on your tax band|
Capital gains tax rates
Capital gains tax is charged at two rates. Those who pay basic rate income tax pay CGT at 18%, but higher rate taxpayers are charged CGT at 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% (£31,865 taxable income in 2014-15, £32,010 in 2013-14), you will pay the higher rate of CGT on the portion of gains that takes you over the threshold .
You don’t pay capital gains tax on the full amount you make as everyone has a yearly tax-free allowance: £11,000 in 2014-15, £10,900 in 2013-14. In addition, some gains are tax-free (see below).
On your 2013-14 tax return, you must give details if your taxable gains for the year came to more than £10,900 or the total value of the assets you disposed of (other than those which are tax-free) came to more than £40,400. HMRC's online tax return service includes capital gains.You must include your workings for each capital gain or loss that you report.
Tax-free capital gains
You don’t have to pay tax on all capital gains. Those listed below are tax-free:
- 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 of your only or main home (but see CGT on your home).
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 chattels 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.
- 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).