Capital Gains Tax: When do you pay it?

Everyone has a yearly tax-free allowance of £11,000 but it’s vital that you work out the correct amount for each Capital Gain or loss that you report.

In the UK, Capital Gains is 18% for payers of basic rate income tax and 28% for higher rate taxpayers.

An item you’re selling that is tangible and movable is called a ‘Chattel’.

Please be aware that the list below is a summary and each case should be looked at individually.

When you do:

A non-wasting Chattel worth over £6,000

A non-wasting Chattel, such as antique furniture or a painting is an asset with an expected life of over 50 years. If it exceeds a market value of £6,000, it’s liable for Capital Gains tax.

It’s worth noting that when selling a non-wasting chattel such as a set of furniture, the value is based on the set and not the individual pieces, such as a chair and table set.

Giving as a gift or transferring an asset to someone else

Unless the gift is to your spouse or partner, Capital Gains tax applies to an asset that is transferred to a family, friend or business partner. There is relief on gifts such as a ‘hold-over’ relief which postpones the tax until the recipient of the gift then sells the asset on. This applies to gifts on business assets and agricultural land.

Shares and Investments

Shares and Investments are not usually liable for Capital Gains tax unless the asset is then sold on.

Second Homes or Investment Properties

When the expenses scandal hit the headlines back in 2006, MPs were under the spotlight for swindling the system by switching their homes (main and second homes) to avoid paying the Capital Gains tax.

It’s therefore important that an owner of a second home can prove that he or she does not live there more than their main residence.

If you spend more time in a second home, your primary family home could soon be charged Capital Gains Tax if you decide to sell it. Following a government consultation this week, HMRC could assess where the house seller spends the most time, as of April 2015.

When you don’t:

A Wasting Chattel

A ‘wasting Chattel’ is an asset that has a predicted life that is less than 50 years such as a car, a computer or a racehorse. All wasting chattels are exempt from Capital Gains tax no matter how high its market value is.

Your Main Home

If you don’t own any other properties, a specific type of Capital Gains tax relief applies when selling your private residence. This tax relief is called ‘Principal Private Residence’.

Individual Savings Accounts (ISAs)

Any interest you gain in your savings account (Cash ISAs) is completely exempt from Capital Gains Tax.

UK Government Bonds or Gilts:

Profit on Gilts is free from capital gains tax (CGT). The majority of bonds in the UK are free from capital gains tax, providing that they are ‘Qualifying Corporate Bonds’. Broadly speaking this means most bonds apart from convertibles; however it is best to check if any individual issue is disqualified from this. Caution should also be used with low or zero coupon bonds, where the capital gain may be viewed as income.

Betting, Lottery, or Pool Winnings

If you happen to win on a bet on your favourite horse or football team, on the pools or even win the national lottery, you won’t need to worry about Capital Gains tax as it’s completely exempt from this.

Giving to Charity

Donations to a charity such as land, buildings or shares are completely exempt from being liable for Capital Gains tax. You can also class the donation as a loss rather than a gain which can reduce your Capital Gains liability on other assets.

Handy Tips:

• Make sure to keep hold of receipts or records for each asset, just in case you need to refer to them or are asked to provide them.
• Capital Gains Tax applies all around the world, not just in the UK. You might therefore be subject to the tax if you consider selling an asset in a different country
• Be aware of certain scenarios such as insurance payouts on destroyed assets such as antiques. This payout could be treated as liable for Capital Gains Tax. Check with a Tax Advisor if you ever find yourself in this scenario.
• If you inherit an asset, you won’t have to worry about Capital Gains Tax unless you decide to sell that asset as inheritance tax on the asset would have been settled in the person’s estate before you receive it. The exception to this rule is shares (which we’ve covered above).

Read What is P11D Form.