This section overviews Capital Gains Tax rules on profit realized by the disposal of assets. Find out how to work out the current rates of CGT and how to pay tax owed.
CAPITAL GAINS TAX EXPLAINED: As common items increase in value they often realize a gain in capital.
Thus, selling property, bonds, stocks, and precious metals can result in a profit liable for Capital Gains Tax.
You only pay Capital Gains tax on the actual profit made and not the whole amount that you sold it for.
There is a simple definition of the Capital Gains Tax. It is the tax levied, by the UK Government, on the profit or 'capital gain'.
The gain would get realized by selling or disposing of a non-inventory asset (if it cannot be kept or maintained as a countable stock item).
So, a capital gain (called profit) on an item that increased in value is the difference between what the item cost you to purchase and the amount of money that you actually receive when you dispose of it (sell the asset).
Example 1: You buy a rare coin collection for £3,000 and later sell it for a total price of £9,000. Thus, you realized a profit (gain) of £6,000 (£9,000 - £3,000).
Example 2: When you bought a pair of vases they cost you £15,000 and when you sold them you received £35,000. That means your profit (gain) is £20,000 (£35,000 minus £15,000).
You need to work out if the gain (or gains) exceeds your tax-free CGT personal allowance for the tax year (6th April to the following 5th April). If not, then you do not have to pay any Capital Gains Tax at all.
Certain assets get classified as tax free and would not be liable for Capital Gains Tax. Typical examples include many personal possessions. This general rule applies to assets and items which get sold for less that £6,000.
CGT disposal of an asset can include:
As a rule, the following 'chargeable assets' would be eligible for CGT. The gain would need paying on the realization of any profit when you dispose of or sell the asset:
Note: In some cases, you can reduce or defer the tax by claiming a relief. But, it would depend on the particular asset. Disposing of an asset jointly owned with someone else means you pay CGT on your share of the gain.
You do not have to pay Capital Gains Tax if the amount of all your profits and other taxable income is below your Capital Gains Tax Annual Exempt Allowance. As a rule, if the asset was given to your spouse, your civil partner, or to a charity as a gift it is exempt from CGT gain.
Gains realized from some assets are not liable for Capital Gains Tax including:
Note: Betting duty got abolished in 2001. So there is no longer any tax liable by the customer in the United Kingdom. All winnings from sports bets, casino play, lotteries and other forms of gambling are completely tax free. Furthermore, you do not need to declare your winnings to HM Revenue and Customs.
As a rule, if someone dies and you inherit an asset, the estate of the deceased person pays the Inheritance Tax. But, if at a later date you decide to sell or dispose of the asset, you will need to work out Capital Gains Tax. Any profits may be liable for a payment to HM Revenue and Customs.
Overseas assets may be liable for Capital Gains Tax. UK residents who have their permanent home 'domiciled' overseas may not have to pay UK based tax on a foreign income. Special rules apply if you claim the 'remittance basis'.
If you are a non-resident for tax purposes, with some rules of exception, you may need to pay Capital Gains Tax on any profit (gain) you make on the sale of your residential property in the United Kingdom.
Note: Your other UK assets, such as company shares, are not liable for Capital Gains Tax unless you return to the United Kingdom within a five year period of the time you left. In some cases you may have to pay Capital Gains Tax on the profits while you were in non-residence expat status.
CGT Allowances: The Annual Exempt Allowance determines how much tax-free profit you can realise.
Gifts to a Spouse or Charity: Special rules for gifted assets to your spouse, civil partner, or to charities.
How to Work Out CGT: Calculating Capital Gains Tax on disposals the simple way and making a report.
Report and Pay CGT: How to use the 'real time' CGT service and annual Self Assessment tax return.
Capital Gains Tax Rates: Residential property has a different rate of tax on gains than most other assets.
CGT If You Make a Loss: Check how to report losses on a chargeable asset to HM Revenue and Customs.
CGT Record Keeping: How collecting records will help you work out the gains and fill in a tax return
CGT Market Value: A list of certain situations that require you to use the market value instead.
Capital Gains Tax Overview for the United Kingdom