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Capital gains tax explained

Capital gains tax may apply to the profit when you sell a capital asset you own that’s increased in value. It’s not applicable to all assets, but usually must be paid on chargeable items sold for a substantial profit.

What assets can be liable to pay capital gains tax?

You may have to pay capital gains tax if any of the following are sold for a considerable profit:

  • Investments, like shares and bonds, that don’t sit inside a tax wrapper like an ISA
  • Any property in the UK that isn’t your main home
  • Your main home if you’ve let it out or used it for business purposes.
  • An overseas property you’re selling if you’re resident in the UK 
  • Most personal possessions worth £6,000 or more, apart from your car
  • Business assets

What is the capital gains tax rate?

Your capital gains tax rate will depend on the income tax rate you currently pay. Those paying basic income tax will pay 10% for gains, or 18% for gains on a residential property. 

Those on who pay higher rate income tax will pay 20% on chargeable assets and 28% on gains from a residential property.

What is the annual capital gains tax allowance?

The capital gains tax allowance, often referred to as the ‘annual exempt amount’, is the amount of tax-free profit you’re entitled to make during the year if you sell chargeable assets.

This amount is set by the government, and you’ll only pay capital gains tax on any chargeable gains above this amount from assets sold in a tax year. The allowance is the same for everyone, but usually changes each tax year. 

Who’s exempt from capital gains tax?

Nobody is exempt from capital gains tax – there are only exceptions for certain assets. The sale of your main home won’t be affected by capital gains tax, for example, because this qualifies for ‘private residence’ relief. 

Special rules also apply for gifts to a spouse or civil partner or gifts donated to charity, you can find out more on the government website.

How much is capital gains tax on property?

Capital gains tax payable on non-private residential properties depends on the profit it’s made since you bought it.

The capital gains allowance is then deducted from that figure and the remaining profit is then charged at either 18% or 28%, depending on your total taxable income.

Deducting losses from your capital gains tax

If you report a loss on any taxable assets, you can report it to HMRC to reduce your total taxable gain.

You can carry unused losses from previous tax years and carry forwarded remaining losses to a future tax year if your total taxable gain is above the tax-free allowance.

How to calculate capital gains tax

  1. Start with the amount you sold the asset for
  2. Subtract the amount it was worth when you bought or inherited it to calculate your profit
  3. Subtract the current CGT allowance to get the taxable amount
  4. If you pay basic rate income tax, your CGT liability will be 10% of this figure (or 18% for properties). If you pay higher income tax, your CGT liability will be 20% of this figure (or 28% for properties)

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