In this section:
- Introduction to Capital Gains Tax
- Is your asset liable to Capital Gains Tax?
- Gifts, inheritance, divorce - is Capital Gains Tax due?
Introduction to Capital Gains Tax
Capital Gains Tax is a tax on the gain or profit you make when you sell, give away or otherwise dispose of something that you own, such as shares or property. There's a tax-free allowance and some additional reliefs that may reduce your Capital Gains Tax bill. Sometimes you may have no tax to pay.
On this page:
- What is Capital Gains Tax?
- Is your asset liable to Capital Gains Tax?
- Gifts, inheritance, divorce - is Capital Gains Tax due?
- Working out your gains or losses
- The annual tax-free allowance
- Rates of tax on capital gains
- How to report a gain or loss
- Records you need to keep
- More useful links
What is Capital Gains Tax?
Capital Gains Tax is a tax on the profit or gain you make when you sell or ‘dispose of’ an asset.
You usually dispose of an asset when you cease to own it - for example if you:
- sell it
- give it away as a gift
- transfer it to someone else
- exchange it for something else
- receive compensation for it - eg you receive an insurance payout when an asset's been destroyed
It's the gain you make - not the amount of money you receive for the asset - that's taxed.
Example
You bought some shares for £2,500 in June 1990.
You sell them for £12,500 in May 2008.
You've made a gain of £10,000 (£12,500 less £2,500).
Is your asset liable to Capital Gains Tax?
Most assets are liable to Capital Gains Tax when you sell or dispose of them - whether they're in the UK or overseas.
However, some assets are exempt, such as your car, personal possessions disposed of for £6,000 or less and, usually, your main home.
Find out if your asset is liable to Capital Gains Tax or exempt
Gifts, inheritance, divorce - is Capital Gains Tax due?
Many events can lead to a gain or loss, besides the obvious one of selling an asset - sometimes when you least expect it.
Gifts
Making a gift to a child - or to other people or companies - is a ‘disposal’ for Capital Gains Tax purposes, and you'll need to work out if Capital Gains Tax is due. However, making a gift to a spouse, civil partner or charity usually won't lead to Capital Gains Tax.
Inheriting assets
If you inherit an asset, it’s not liable to Capital Gains Tax until you sell or dispose of it. You’ll usually need to get a valuation of the asset at the date of death when you come to work out the capital gain or loss.
Divorce, separation or dissolving a civil partnership
When you divorce, separate or dissolve a civil partnership, you may end up transferring assets between you. These are disposals for Capital Gains Tax purposes. Whether you're liable depends on the date of transfer and whether you’re living together at the time.
Find out more about how gifts, inheritance and divorce affect Capital Gains Tax
Working out your gains or losses
When you sell or dispose of an asset, you need to work out the gain or loss on each asset separately. You should include any allowable costs associated with acquiring or disposing of the asset, and apply any tax reliefs.
You then bring all the individual gains and losses together to work out the overall gain or loss for the tax year and the amount of tax due.
If you've got unused losses from earlier years - and have claimed them in time - you may be able to deduct them too.
You only have to pay Capital Gains Tax if you have overall gains above the annual tax-free allowance (see the section below).
Get more help with working out your capital gain or loss
The annual tax-free allowance
You have an annual tax-free allowance for Capital Gains Tax known as the 'Annual Exempt Amount'.
The Annual Exempt Amount for tax year 2008-09 is:
- £9,600 for each individual
- £4,800 for most trustees
These amounts have increased for 2009-10, see the link to 'more on tax-free allowances' below.
If your overall gains for the tax year are above the Annual Exempt Amount, you’ll pay Capital Gains Tax on the excess.
If your overall gains are below the Annual Exempt Amount, you won’t pay Capital Gains Tax.
Example
Your overall gain in 2008-09 is £18,000.
The Annual Exempt Amount is £9,600.
You'll pay Capital Gains Tax on the excess of £8,400 (£18,000 - £9,600).
Trustees, executors/personal representatives and non-UK residents
If you're a trustee or the personal representative of a deceased person’s estate - or if you aren’t resident in the UK - please use the link below to find out how to use the Annual Exempt Amount.
More on tax-free allowances for Capital Gains Tax
Rates of tax on capital gains
For 2008-09 and later years, Capital Gains Tax is charged at a flat rate of 18 per cent. Different rates applied for tax years before 2008-09.
See Capital Gains Tax rates and annual tax-free allowances
How to report a gain or loss
If you have Capital Gains Tax to pay - or a loss you want to claim - and haven't received a tax return or letter asking you to complete a tax return, you need to contact your Tax Office.
If you normally complete a Self Assessment tax return, you need to check if your gains need reporting (see the reporting link below). If you have gains to report or a loss you want to claim, you'll need to complete the additional Capital Gains Tax pages and send these in with your tax return.
Find out more about reporting a capital gain
What to do if you’ve made a loss
Records you need to keep
It’s very important to keep any records associated with buying, selling or otherwise acquiring or disposing of assets. You should also keep any records that show your expenses in relation to the asset. These will help you work out the gain or loss and support your tax return or claim.
Find out more about record keeping and Capital Gains Tax
More useful links
Property and Capital Gains Tax
Personal possessions and Capital Gains Tax
