Capital Gains Tax (CGT) is charged on the profit or gain made when you dispose of an asset. You won’t pay CGT on the sale of your principal private residence, stocks and shares held within an ISA, proceeds from life insurance policies, or the sale of a private car. However, assets such as shares, collective investments and second properties that generate a capital gain are potentially liable to CGT.
Different rates apply Every individual gets an exemption to set against any capital gains they have made in that tax year. For tax year 2018-19, this is £11,700.
After offsetting your annual exemption, CGT is charged at different rates, depending on your income tax band. So, for tax year 2018-19, basic rate taxpayers will pay 10% and higher rate or additional rate taxpayers will pay 20%.
There is a higher charge for those selling a second home, 18% for those in the basic rate income tax band, and 28% in the higher or additional rate income tax band. However, there are various reliefs available that can, in appropriate circumstances, be applied to reduce the tax payable, such as deemed occupation, principal private residence and lettings relief.
Reducing the amount payable
Since the rate of CGT you pay depends on your income tax band, making pension contributions or charitable donations could reduce your CGT liability. Making maximum use of your ISA allowance makes sense too, as any gains you make are tax-free.
Transfers made between spouses or civil partners are not liable to CGT, so for planning purposes it can pay to look at CGT as a couple.
Getting professional advice
Taxation can be complex, so professional advice is essential.
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