Capital gains tax – the facts and the figures

If you own a property or other substantial asset like a painting or a share portfolio, capital gains tax may already be a familiar term to you but, unless you keep up to date with changes to the rates and laws surrounding it, you could find yourself falling foul of a liability when you sell your asset.

The facts

Capital gains tax is the tax you pay when you sell, give away or receive compensation for an asset that has increased in value from the time you acquired it. If the profit you make when you dispose of your asset, less any losses, exceeds your annual allowance, that excess will be subject to capital gains tax.

Different rates apply to business and non-business assets and if your assets are overseas you may still be liable, although special rules apply if you’re a UK resident and claim the remittance basis. If you live overseas, you’ll still have to pay tax on your UK residential property gains, but not on your other assets in the UK unless you move back within five years of emigrating.

What do you pay capital gains tax on?

 Capital gains tax applies to chargeable assets, such as personal possessions worth more than £6,000, a second property or your own home that you’ve let or used for business, shares, unit trusts and business assets. Tax on gains from residential property is 8% higher than the tax you pay on gains from other chargeable assets.

 What don’t you pay capital gains tax on?

 Capital gains tax doesn’t apply to a car or a property that’s your main home, ISAs and PEPs, Premium Bonds, UK Government gilts or winnings you make from the lottery, betting or on the pools.

Exceptions to the rules?

Relief can be claimed on some assets, for example, Private Residents Relief in the case of property and, if your asset is shared, you’ll only pay the tax on your portion of it. Gifts to your spouse, civil partner or a charity aren’t usually subject to it and, when you inherit an asset, you’ll only be liable if you dispose of your asset later on.

The figures

The Chancellor’s annual budget usually brings changes to rates, allowances and liabilities and it’s vital that you’re aware of your obligations. Here’s a snapshot of the figures for 2018/19:

The annual capital gains tax rate:

  •  £11,700 for individuals
  • £5,850 for trusts

Rates for non-business assets:

If you’re a basic rate taxpayer and, when added to your taxable income, your gains fall within the basic rate tax band:

  • you’ll pay 10% on your gains from chargeable assets
  • you’ll pay 18% on your gains from residential property

 If you’re a higher or additional rate tax band (34,500 for 2018/19):

  •  you’ll pay 20% on your gains from chargeable assets
  • you’ll pay 28% on your gains from residential property

For trustees and personal representatives of deceased people:

  •  the rate is 20%

Find out more about what capital gains tax could mean for you

If you’re not sure whether you’ll be liable to capital gains tax when you dispose of a property, HMRC has a handy online calculator to help you work it all out. You can find it at https://www.tax.service.gov.uk/calculate-your-capital-gains/resident/properties/disposal-date.

You can also read more about capital gains tax on the government website at https://www.gov.uk/capital-gains-tax/work-out-need-to-pay where you’ll find a full overview of all aspects of taxable gains.

Deloitte, the world’s largest professional services network has compiled a comprehensive budget report that includes the latest capital gains tax rates – you can download it here http://www.ukbudget.com/files/deloitte-uk-tax-rates-2018-19.pdf

If you think you’re likely to be subject to capital gains tax, there are steps you can take to reduce your liability or simply plan for the future, Vanguard, the international investment company, has published a revealing commentary on how to make the most of the reliefs and allowance at your disposal. You can read it here https://www.vanguardinvestor.co.uk/articles/latest-thoughts/how-it-works/reduce-capital-gains-tax-bill.