Capital gains tax is payable when you've made a profit on something you've sold. But if you follow the rules, there are plenty of ways to cut down your bill.
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This guide answers some of the most common queries we've received about capital gains tax (CGT).
Q. I bought an oil painting for £12,000 many years ago but recently decided to auction it off. The painting sold for £3,000 – a huge loss. Can I offset this against other capital gains?
Our experts say: Yes you can, but losses on personal possessions are calculated as if the item’s final value had been £6,000. For example, if you sell an oil painting for £3,000, after paying £12,000 for it, this means you can only record a loss of £6,000 (rather than the actual £9,000 shortfall).
To set this loss against other capital gains, or to carry it forward to offset future gains, you need to declare it to HMRC within four years.
Find out more: how capital gains are taxed – more information about offsetting losses
Q. We are selling a property that used to be our family home but has been let out to tenants for the past five years. Are we entitled to capital tax relief?
Our experts say: If you have previously lived in the property you are selling or giving away, you are able to claim ‘private residence relief’ and cut the amount of CGT you have to pay.
This is because years in which the property was your main home don’t count towards calculating the eventual gain. In addition to this, the final 18 months of ownership is also excluded, even if you don’t actually live there during this time.
This relief is calculated by taking the length time you spent living at the property as a proportion of the profit you made and deducting that from your total amount of profit.
You may also be able to reduce CGT by claiming letting relief. It works in a similar way to private residence relief but has some stricter conditions. The maximum you can claim is the lower of:
• the amount of private residence relief you qualify for
• the amount of profit you’ve made during the time your property was let out
• or £40,000.
Find out more: capital gains tax and property – this guide features examples of these reliefs
Q. I inherited a property from my dad and have been letting it out ever since he died. I now want to give it away to my son and his wife. Will there be any CGT and how do I calculate it?
Our experts say: If you decide to give a property away, the gain you’ll be taxed on is based on its current market value. For a property you inherit, the starting point is the market value at the time the donor died. If you owned it before 31 March 1982, the starting point is its market value on that date.
Inheritance tax may still have to be paid on the property if you die within seven years.
Find out more: IHT-free gifts – we explain when IHT is due on gifts
Q. My wife holds shares in a Save As You Earn (SAYE) scheme with her employer. She’d like to transfer some into an investment Isa. Will this trigger capital gains tax?
Our experts say: The rules for transferring SAYE shares differ from normal shares, so if you transfer them into the investment Isa within 90 days of them being released, no capital gains tax will be payable.
The Isa investment allowance is £20,000 in 2018/19. Under normal circumstances, transferring existing shares outside of an Isa into one would count as a 'disposal' as you have to sell them to buy them back within an Isa. This would trigger capital gains tax.
Find out more: stocks and shares Isa transfers – we explain the necessary steps
Q. I purchased shares in a small start-up company two years ago, and they’ve substantially increased in value. I’ve recently bought more shares in the company at a higher price. How does this affect my capital gains tax liability when the time comes to sell?
Our experts say: HMRC recognises that people often buy batches of shares in the same company at different times and that applying the starting price against future sales can be complicated.
Unless you've bought shares up to 30 days prior to the sale, you don’t need to use the buying price for each tranche. Instead, your shares are lumped together, with an average price based on how much you paid for each batch. When you sell any, this average price is used to calculate any gain.
Find out more: capital gains tax on shares – our guide explains the ins and outs