FINANCIAL PLANNING

What is capital gains tax?

Capital gains tax is the tax you pay on the profit (gain) you’ve made on an asset between the time you acquire it and dispose of it. When you dispose of your asset, you might have capital gains tax to pay. Most of the time assets are disposed of by selling them but it is also possible to dispose of them by giving them away, losing them or destroying them. We explain the nuts and bolts for you here.

Published on 28 Jan 20224 minute read

Written by Frances Bruce

How much is capital gains tax?

Everyone receives a capital gains tax allowance each tax year, known as an annual exempt amount. The exemption is currently £12,300 (set to stay until 2026). Capital gains tax is calculated according to asset type and your income band:

 

Capital gains tax rate -

Basic-rate taxpayers

Capital gains tax rate –

Higher-rate taxpayers

Property other than your home

18%

28%

Other assets

10%

20%

Your capital gains tax allowance cannot be carried backwards or forwards into a different tax year so if you don’t use your annual capital gains tax exemption each tax year, you lose it.

What do you pay capital gains tax on?

You could be liable for capital gains tax when you dispose of almost any asset ranging from personal property, such as antiques and valuable pieces (including sets), to shares.

The good news is there’s no capital gains tax owing on stocks and shares held inside ISAs and pension investments such as those held in SIPPs (Self-invested Personal Pensions).

There are strict rules around disposing of household assets such as jewellery, antiques and sets (known as ‘chattels’). You’ll usually pay capital gains tax if the gain is over £6,000. There is no capital gains tax on household items selling for less than that.

What don’t you pay capital gains tax on?

As well as not paying capital gains tax on your ISAs or pension investments, assets exempt from capital gains tax include:

  • Your home (unless you’re renting it out)
  • Premium Bonds, gilts, corporate bonds
  • Venture Capital Trusts (VCTs)
  • Winnings from bets such as the lottery

What happens with capital gains tax if I make a loss when I dispose of an asset?

Capital gains tax is charged on all the gains you make in one year. If you make a loss on one asset but a gain on another, you can subtract the loss from the gain.

  • If your gain exceeds your loss: capital gains tax is charged if the leftover gains exceed £12,300
  • If your loss exceeds your gain: no capital gains tax is charged. The excess loss is carried forward indefinitely for you to offset against future gains. You should register losses with the HMRC within four years

Am I charged capital gains tax if I transfer assets to my husband or wife?

No, you don’t pay capital gains tax if you transfer assets to your husband, wife or civil partner - and you can’t claim losses for that asset after transfer.

What happens to jointly owned assets?

You usually calculate gains on your portion of the asset - and you can pool your allowances and potentially give yourselves a £24,600 tax-free threshold.

Is capital gains tax charged when I die?

No. Your assets are exempt from capital gains tax on death. There might be inheritance tax to pay though. Capital gains tax could apply when the asset is disposed of by executors or the people you have left them to - if there is a gain between the date of death and when they are sold.

How Bestinvest can help you

We offer a stocks and shares ISA and our Best SIPP*, which allow you to invest without having to pay capital gains tax in the future. You can also give us a call on 020 7189 2400 and our friendly team can answer any questions you have about tax-efficient investing.

Important information

The value of an investment may go down as well as up, and you may get back less than you originally invested.

This article does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact a financial adviser.

Prevailing tax rates and reliefs depend on your individual circumstances and are subject to change.

* SIPPs are not suitable for everyone. If you don’t want to invest across different asset classes or don’t think you will make use of the investment choices that SIPPs give you, then a SIPP might not be right for you. Please note, other taxes may apply when taking your pension income.

You may also like…