What is Capital Gains Tax?
Put simply, capital gains tax is the percentage of tax you pay for any assets which you sell for a profit. The 'gain' that you make on the original cost, is the sum that is taxed – not the whole sum that you receive. For example if you've bought a house for £100,000, and sell it for £150,000, your gains are £50,000, and this is the sum you pay the capital gains tax on.
When it's applicable
Assets disposed of in the following ways might be eligible for capital gains tax:
- Selling it
- Giving it as a gift, or transferring to another name (excluding your marriage, or civil partner, and charities)
- Swapping it for another asset
- Being compensated (e.g. by insurance in the event of the assets loss or destruction)
It's worth mentioning here that you don't pay capital gains tax if you are still under your tax-free allowance for the year, and some assets are tax free in this respect
What you pay it on
Assuming that you have exceeded your personal tax-free allowance for the year, capital gains tax is applicable when you dispose of any of the following chargeable assets:
- Personal possessions above £6,000 (excluding your car or vehicle)
- Property that isn't your main residence
- Your main home if you let it out, or it's used for business
- Shares that aren't in ISA, NISA or PEP
- Business assets
What you don't pay it on
There are certain assets which you don't have to pay capital gains tax on, these include:
- Shares in ISAs, NISAs or PEPs
- UK government Premium Bonds and gilts
- Winnings from gambling, lotteries or the pools
- Gifts to charities
When you inherit an asset, deductions are normally made for inheritance tax from the estate of the deceased. You do not need to pay any capital gains tax at this point, however, if you dispose of the asset, capital gains tax will then be applicable
If you have assets overseas, it's likely that you will also have to pay capital gains tax. However if you’re 'domiciled' (UK residents whose main residence is overseas), capital gains tax is not applicable to you.