Capital Gains Tax

Capital Gains Tax (CGT) is payable when you make a gain on an investment i.e. you sell it for more than you paid for it.

Most things we buy, we rarely sell for more than we paid e.g. cars, jewellery, clothes etc. don’t normally qualify for CGT as we rarely make money on them. If you do sell items for more than you paid for them, then if you make more money in any year than the CGT allowance (currently £12,300 2021/22) you are liable to pay CGT on the gains above the CGT allowance.

You do not pay CGT on your home assuming it is your sole or main residence. If you have more than one property then you need to elect which home is your main residence and you will pay CGT on the other properties.

An important consideration is that CGT is only payable when you actually sell an asset. Assets can have a CGT liability attached to them because if you sell them they will attract CGT. As you get an annual CGT allowance, if you restrict your sales in each year within this allowance you will avoid paying any CGT. This is possible to do with most unitised investments (e.g. shares, unit trusts etc.) however it is much harder with items such as property as you can’t really sell half a house.

Investments held under an Individual Savings Account (ISAs) or in a pension are not liable to CGT which is one of the main attractions of these plans (often referred to as tax wrappers).

CGT is calculated at a different tax rate to Income Tax although if the total gains you make in a year above the CGT allowance are still within the basic rate tax band you will pay tax on the gain at 18%. If the gains when added to your other income take you into the 40% band then you will pay tax at 28% taxable gains.

Also see -

Tax Planning Income Tax on Savings and Dividends Charitable Gifts

Entrepreneur's Relief Inheritance Tax Write a Will Income Tax

Potentially Exempt Transfers Corporation Tax National Insurance

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