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Tax Overview

Capital Gains Tax Overview

A section that overviews CGT profit realized on disposed assets, how to work out the current rates of tax, and how to pay.

CAPITAL GAINS TAX EXPLAINED: As a rule, examples of common items that increase in value and realize capital gains when they are sold include property, bonds, stocks, and precious metals.

You only pay Capital Gains tax on the actual profit made and not the whole amount that you sold it for.

What is the Capital Gains Tax?

The simple definition of the Capital Gains Tax (CGT) is the tax levied, by the United Kingdom Government, on the profit or 'capital gain' realized by selling or disposing of a non-inventory asset (cannot be maintained as countable stock items).

Therefore, a Capital Gain (more commonly 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).

Capital Gains Tax Examples

Example: 1 - You buy a rare coin collection for £3,000 and later sell it for a total price of £9,000. Therefore 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 eventually sold them you received £35,000. That means your profit (gain) is £20,000 (£35,000 minus £15,000).

If the gain (or gains) does not exceed your tax-free CGT personal allowance for the tax year (6th April to the following 5th April), then you do not have to pay Capital Gains Tax at all.

Certain assets are classified as tax free and would not be liable for Capital Gains Tax - such as some personal possessions. This general rule applies to assets and items which are sold for less that £6,000.

Capital Gains Tax Disposal of an Asset

CGT disposal of an asset can include;

What Assets You Pay CGT On

As a rule, the following 'chargeable assets' would be eligible for CGT gain to be paid on the realization of any profit when you dispose of or sell the asset;

Note: In some cases you reduce or defer tax by claiming a relief but it depends on the particular asset.

When You Do Not Pay CGT 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.

Assets Exempt from Capital Gains Tax

Gains realized from some assets are not liable for Capital Gains Tax including;

Note: Betting duty was abolished in 2001 which means that there is no longer any tax to be paid 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.

CGT When Someone Dies

As a general rule if someone dies and you inherit an asset, the estate of the deceased person pays the Inheritance Tax. However, if at a later date you decide to sell or dispose of the asset, you will need to work out your Capital Gains Tax which may be liable for a payment to HM Revenue and Customs.

CGT Overseas Assets

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 Live Abroad

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.

People Also Asked...

What is the Capital Gains Tax Allowance?
Working out your Capital Gains Tax Annual Exempt Allowance helps you determine the amount of tax-free profit you can realize before you need to pay CGT on the gain. There are special CGT rules for gifts or assets that you dispose of to your spouse, civil partner, or to a charity.

How Do I Work Out My Capital Gains Tax?
CALCULATE CGT: How to work out your Capital Gains Tax on disposals the simple way and then make a report on your Self Assessment form and pay the tax bill to HMRC.

What is the Capital Gains Tax Rate 2015/16 UK?
CGT RATE BEFORE 6 APRIL 2016: This section explains the CGT rates for gains made before the new tax rules take full effect beginning on the 6th of April 2016.

What is the Capital Gains Tax Rate from 6th April 2016?
CGT RATE FROM 6 APRIL 2016: This section explains the Capital Gains Tax rates for gains made after the new tax rules take full effect beginning on the 6th of April 2016.

How Can I Report a CGT Loss on a Chargeable Asset?
CGT LOSSES: Find out what happens if you make a tax loss on a chargeable asset and how to report CGT 'allowable losses' to HM Revenue and Customs.

What CGT Records Do I Need to Keep and For How Long?
You must collect all Capital Gains Tax records to help you calculate your gains or losses and for filling in your Self Assessment form. As a rule, you need to keep them for a minimum of one year after the deadline.

Capital Gains Tax Overview; UK Rules Updated 2017