Have you made a profit on an asset?
If you have, it is possible that you will have to pay some Capital Gains Tax (CGT). However, the rules for CGT are complicated and incorporate gains and losses, exempt items, annual allowances and multiple tax rates.
Our guide explains what Capital Gains Tax is and when you have to pay it.
What is Capital Gains Tax?
Capital Gains Tax is a tax on the profit (or ‘gain’) you make when you sell or dispose of an asset. It is not just paid when you sell an asset; it is also paid when you dispose of it in other ways, such as when you:
* Give it away as a gift
* Exchange it for something else
* Transfer it to someone else (except if you are married or in a civil partnership and living together, where you can transfer assets to your spouse or civil partner with no CGT)
* Receive compensation for it (an insurance payout if it is destroyed)
You should remember that you don’t pay Capital Gains Tax on the money you receive for the asset but on the profit that you make.
Do I pay Capital Gains Tax if I make a gain on every asset?
No. There are certain items that are exempt from Capital Gains Tax and these include:
* Your main home (provided certain conditions are met)
* Your car
* PEPs or ISAs
* Lottery, pools or betting winnings
* Money on which you already pay income tax
* Personal belongings worth £6,000 or less when you sell them
How do I work out losses and capital gains?
When you sell or dispose of an asset, you need to work out the gain or loss on each asset separately. You are permitted to deduct any allowable costs associated with acquiring or disposing of the asset.
You then total up all of the individual gains and losses to work out the overall gain or loss for the tax year and the amount of tax due.
Every individual has an annual tax-free allowance for CGT, currently £10,100. This means that you only pay CGT on gains you make over £10,100 in the current tax year.
If you make a loss when you dispose of an asset, you may be able to make a claim for that loss and deduct it from other gains. If you have unused losses from earlier years – and have claimed them in time – you may be able to deduct them too.
What Capital Gains Tax rate do I pay?
For the tax years 2008-09 and 2009-10, Capital Gains Tax is charged at a flat rate of 18 per cent.
However, changes in the 2010 Budget led to the following Capital Gains Tax rates applying from 23 June 2010:
* 18 per cent and 28 per cent tax rates for individuals (the tax rate used depends on the total amount of taxable income)
* 28 per cent for trustees or for personal representatives of someone who has died
* 10 per cent for gains qualifying for Entrepreneurs’ Relief
If you normally complete a Self Assessment tax return, you report your capital gains (or losses) using the additional Capital Gains Tax pages of your tax return. If you do not self-assess, you should report your gains or losses by contacting your Tax Office.
