Capital Gains Tax

What is Capital Gains Tax?

Capital Gains Tax (CGT) is charged by HMRC when you 'dispose' of an asset, either by selling it or giving it away, and that asset has increased in value since you acquired it. You pay CGT on the gain (the increase in value), not the full sale proceeds.

Which assets are exempt from CGT?

Not everything you sell or give away attracts CGT. The following are generally exempt:

• Betting and lottery winnings
• Assets held within an ISA
• Jewellery, paintings, and antiques with an individual value of £6,000 or less
• Your private motor car (though a classic car that has appreciated in value may not be exempt)
• Your only or main home, the property you treat as your principal private residence

For most people, CGT is most likely to arise on the disposal of rented property, stocks and shares not held in an ISA, or high-value collectibles such as paintings and works of art.

Giving assets away: generosity isn't always CGT-free

Giving an asset away does not exempt you from CGT. If you give an asset to your son or daughter at below its market value, HMRC will still calculate CGT as if you had sold it at the full market value on the date of transfer.

You can, however, transfer assets to your legal spouse or civil partner without triggering an immediate CGT liability. But if your partner later sells that asset, they may face CGT on the total gain, including any gain that accrued while you held it, plus any further gain they make themselves.

Reducing your CGT liability

There are several legitimate ways to reduce the amount of CGT you pay:

• Annual Exempt Amount: every individual has an annual CGT exemption. Gains up to this threshold each year are free of tax. For jointly held assets, both partners can use their own annual exemption, effectively doubling the amount that can be disposed of tax-free.
• Timing disposals carefully: if you have unused annual exemption in one tax year, consider timing a sale to fall before 5 April rather than after
• Using losses: capital losses on other assets can be set against gains in the same or future tax years
• Holding assets in joint names: with a spouse or civil partner, to split gains across two exemptions
• Bed and ISA strategies: selling assets and repurchasing them inside an ISA wrapper

When do you need to report a gain?

CGT must be reported to HMRC even if it falls within your annual exempt amount. Residential property gains must generally be reported and any tax paid within 60 days of completion of the sale. Other gains are reported through Self Assessment. HMRC can and do open enquiries into disposals where they believe something has been missed.