What is Capital Gains Tax (CGT)
Capital gains tax is charged on any profits (the ‘gains’) you make when you sell (or transfer) shares and unit trusts or other assets which include a second home. Working out how much CGT you have to pay can be tricky and only needs to be paid if you make a certain amount of profit from the sale of your assets in any given tax year.
Capital Gains Tax Allowances & Rates
For the 2015/16 tax year the annual allowance is set at £11,100. There are two CGT tax rates, the basic rate which is at 18%, and the higher rate where CGT is set at 28%.
If you are a basic rate taxpayer because you have a lower income, but have made large enough taxable capital gains to push you over the limit where tax is charged at 40% (£42,386 taxable income), you will pay the higher rate of CGT on the portion of gains that takes you over the limit.
What is exempt from Capital Gains Tax?
Gifts to your spouse or civil partner
You do not have to pay capital gains tax on assets you give or sell to your husband, wife or civil partner, unless:
- You are separated and did not live together at all in that tax year.
- You gave them goods for their business to sell on.
Gifts to charity
You do not have to pay CGT on assets you give away to charity however, you may have to pay if you sell an asset to charity for both:
- More than you paid for it
- Less than market value
You can work out your gain using the amount the charity actually pays you, rather than the value of the asset.
Capital Gains Tax and Property
Capital gains tax is normally not payable on gains you make on your only or main home because these qualify for private residence relief (PRR). However, part of any gain could still be taxable if any of the following occurs:
- You develop your home – for example by converting part into flats
- You sell part of your garden and your total plot is over half a hectare (1.2 acres).
- Part of your home is used for business purposes only.
- Part of or all of your home is let out. ( You may also be able to reduce the capital gains tax due by claiming letting relief – Click here for more information)
- You bought or improved part or the whole home for the purpose of making a profit.
It should be noted that if you do have more than one you can pick whichever one you want to be tax-free. Most people tend to pick the one which has potential to make the most gain meaning you would save more.
Married couples or civil partnerships can only pick one home between them. Unmarried couples can each pick different ones.
Other Taxes you may want to learn more about
In the UK subject to many other taxes and the more you know about them the better. Below are some you can learn more about.