You may have heard of Capital Gains tax, possibly in relation to inheritance, but don't fully understand what it is or how it affects you. This blog post aims to clear that up.
What is Capital Gains Tax?
CGT is a tax on any profit or gain you receive from selling or exchanging an asset that you own, i.e. anything with a significant monetary value. This includes stocks and shares, land and buildings, and antiques, jewellery etc. worth £6,000 or more. CGT is also due on income received as compensation, or as a competition prize.
You don't have to pay CGT for:
- Your main home (usually)
- Your car
- Cash in an ISA
- Income that you pay Income Tax on (including property trading)
- Gift Aid to charities
- Foreign currencies for personal use
- UK government gilts
- Gambling winnings including lottery and betting
Also, Capital Gains Tax will not be due immediately for inherited assets (although Inheritance Tax might be). When an inheritor sells those assets, CGT is due on the profits.
Calculate your Capital Gains liability
In order to calculate your tax liability, you will need access to your financial history. The easiest way to sort and search through this is using budgeting software.
Add up all the profit you've received from the sale of your assets between April 6th last year and April 5th this year i.e. the amount you sold for minus the amount you bought for.
- Subtract any losses from the sale or disposal of other assets over the same time period.
- Subtract £10,600, this amount is exempt from CGT for individuals.
- Your tax liability is 18% of this total up to £35,000
- If your total is higher, you pay 18% of the £35,000, and 28% of the remainder.
If you find yourself going over the £35,000 and are looking for ways to save money on taxes, think about transferring the ownership of your asset to your spouse or a family member whose asset revenue hasn't passed the £35,000 threshold.