Capital gains tax

Updated on 6 April 2017

Capital gains tax (CGT) is a complicated subject so we provide an introduction only here. We do cover the main issues, though, and signpost you to where you may find extra help.

Capital gains tax basics

What is CGT?

CGT is a tax charged if you sell, give away, exchange or otherwise dispose of an asset and make a profit or gain.

It is not the amount of money you receive for the asset but the gain you make that is taxed.

When does CGT apply?

As noted above it applies when you sell, give away, exchange or otherwise dispose of an asset. You may be subject to CGT on disposals of assets located anywhere in the world, not just your UK-located assets.

This means you may have to pay CGT when you give an asset as a gift to someone.

The rules are different depending on who you give the gift to and there are special reliefs for gifts of business assets. We do not cover this relief in any further detail here, but you can find more information on the GOV.UK website.

It can also apply if you transfer assets on separation, divorce or dissolution of a civil partnership.

In some cases you are treated as if you have disposed of an asset. This might happen, for example, if a personal possession, such as an antique, has been destroyed and you have received a capital sum, such as an insurance payout, by way of compensation.

What is a capital asset?

It is a “thing” that you own such as a house, shares in companies or other possessions.

Do I pay CGT on assets I inherit?

You do not pay CGT when you inherit an asset, but you may have to pay CGT if you sell, give away or exchange an asset you inherited and it has increased in value since the date of death.

If the asset you inherited increases in value between the date of the deceased's death and the date you dispose of it, the increase is a 'capital gain'.

Back to the top

What records do I need to keep for CGT?

If you make a capital gain, you generally need to complete a self assessment tax return, so you need to keep relevant documents in connection with the gain or claim for losses or other reliefs. You also need records that, if necessary, will enable you to answer any queries from HM Revenue & Customs (HMRC).

When we refer to market value in the following guidance, we mean the price your asset might reasonably be expected to fetch on the open market.

You usually acquire an asset when you buy it, but you might also have inherited it, received it as a gift or some other way.

In all cases you need to keep records of the original cost, additional costs associated with acquiring the asset and sometimes records showing the value of the asset on a specific date.

To help you keep check, you may need to keep a record of some or all of the following:

The original cost

If you bought the asset after 31 March 1982 you need to keep records showing the original cost of the asset – such as receipts for purchase. If these are not available you may need to get a valuation of the asset at that date.

If you received the asset some other way – for example by inheritance or gift – you need to find out the market value on the date you acquired it. If you inherited the asset, the executors of the deceased should have provided you with this information.

The market value at 31 March 1982

If you owned the asset on 31 March 1982, you need to work out the market value of the asset at 31 March 1982 and use this in your CGT calculations instead of your actual costs up to that date. You need to keep any records that help you do this.

You may need to get a valuation of the asset at 31 March 1982 from, for example, an estate agent or an auctioneer and you need to keep any such valuation safe for future use.

Market value at other dates

There are other times when you need to use the market value of the asset on a specific date in your CGT calculations instead of the cost.

For example, if you dispose of an asset left to you in a will by a relative who died on 23 January 2016, you use the market value on the date of death instead of any actual cost in your calculations.

Or, if you gave an asset to your child on 18 September 2015, you use the market value on 18 September 2015, the date of the gift, as the proceeds, instead of any amount received.

You may need to get a valuation of the asset from an estate agent or auctioneer. If you want you can get HMRC to check your valuation so that you have an agreed figure for your tax return. In that case you should complete and send form CG3 Post Transaction Valuation Check to HMRC after you have disposed of the property. You can find the form on the GOV.UK website.

Additional records you may need to keep

If you incurred other allowable costs when acquiring the asset – such as stamp duty (or land and buildings transaction tax in Scotland) and any fees paid for professional advice, estate agents costs, valuation fees or other costs of transfer including advertising – you need to keep a record of the amounts involved and any documents relating to that expenditure.

You add these sums to your original cost when working out any capital gain.

You can also deduct any VAT on the costs, unless you are VAT registered and can reclaim the VAT.

There are other costs during your ownership of an asset which can be added to the original cost for CGT purposes:

Improvement costs

If you have spent money improving the value of your asset you may be able to deduct these costs, as long as the improvement is still reflected in the value of the asset when you dispose of it. For example, if you build a garage to add value to your property – and it is still part of the property when you sell or dispose of it – you can deduct the cost of the garage.

You cannot however include maintenance costs, such as decorating or any repairs.

You can also deduct any VAT paid out on improvements, unless you are VAT registered and can reclaim the VAT.

Confirming you own the asset

If you spend money proving that you own or have rights over an asset you may be able to deduct this cost.

When you dispose of your asset

You usually dispose of an asset when you sell it, but you may also give it away, exchange it for another asset, transfer it to someone else or it may have been lost or destroyed.

In all cases you need to keep records of the 'disposal proceeds' – usually the amount you receive – and sometimes records showing its value on a specific date.

You also should keep records of the amount you receive if you otherwise dispose of the asset – this may include, for example, a sum received as compensation for a damaged asset.

Any extra costs

If you spend money selling or otherwise disposing of an asset – such as legal fees, valuation fees or advertising costs to find a buyer – and you deduct these in your CGT calculation, you need to keep records of these costs.

You deduct these costs from your sale proceeds or market value when working out any capital gain on disposal.

Back to the top

How do I work out the profit on disposal of an asset?

You compare the sales proceeds with the original cost of the asset. Bear in mind, unless you bought the asset, you will need to consider the market value of the asset when you acquired it.

If you give away an asset HMRC will treat you as having sold it for what it is worth.

If you are selling an asset you owned at 31 March 1982, you use the market value as it was on 31 March 1982– the amount you could have sold it for on the open market – instead of your original cost.

When you improve or add to your asset, you can deduct this cost from the sale proceeds, but you can only include improvements, for example, an extension to a house, and not repairs.

You can deduct the costs of buying and selling from the gain. Typical costs include legal expenses and estate agents' fees for property, and broker's commission on the purchase and sale of shares.

You normally work out your gain like this:

Proceeds or market value

Less: Original cost or for gifts - the market value at the date of the gift. You need to use market value at 31 March 1982 value if the asset was acquired before this date
Less: Any additions to the asset
Less: Any costs of purchase
Less: Any costs incurred in adding to the asset
Less: Any costs of sale

This then gives you the chargeable gain

Look at the example Neil to see how this works.

What if I only dispose of part of an asset (other than shares)?

Where you dispose of only part of an asset, you work out your cost by taking your sale proceeds and dividing them by the total of sale proceeds and the market value of the unsold part. This is then multiplied by your overall cost like this:

Firstly work out this fraction:

Sale proceeds

(Sale proceeds + market value of unsold part)

Then multiply the fraction by your overall cost to get the cost of the part disposed of.

Look at the example Jenny to see how this works.

Small part disposals of land

If you sell part of a holding of land for £20,000 or less and the proceeds are not more than 20% or 1/5th of the value of the whole piece of land, you can claim not to have made a disposal; but the amount of proceeds you receive is taken off your cost for any future disposal.

You cannot make the claim if you have other disposals of land in the same year and the total of proceeds for all disposals is more than £20,000.

I inherited shares from my mother. How do I find out what they cost her?

You do not have to. You inherit the shares from her at the value on her date of death – and that becomes your cost value.

If these are shares in a quoted company, you can easily find out the value from newspapers. If the shares are shares in a private or family company, you will have to have the shares professionally valued.

Back to the top

What rate is CGT charged at?

The rate of CGT you pay depends partly on what type of chargeable asset you have disposed of and partly on the tax band into which the gain falls.

CGT is charged at the rate of either 10% or 18% for basic rate taxpayers. For higher or additional rate tax payers, the rate is either 20% or 28%.

Gains on most chargeable assets are subject to the 10% or 20% rate, depending on whether the taxpayer is a basic rate or higher / additional rate taxpayer. Chargeable gains on disposals of residential property that do not qualify for main residence relief are subject to the 18% or 28% rate.

There is a special rate of 10% (entrepreneurs' relief) that applies on the sale of certain business assets. You can find more information on the GOV.UK website.

If you live in Scotland and are a Scottish taxpayer, the same rules as explained above apply to you. You must also use the UK rates and bands.

Back to the top

How do I work out the tax I will pay?

As noted above there are two main sets of rates of CGT, 10%/18% and 20%/28%. The rate you pay depends upon the amount of your total taxable income.

When you take your personal allowances and any other deductions such as allowable work expenses from your income you arrive at a figure we call your total taxable income.

If you are taxed at the basic rate of tax on your total taxable income, you pay CGT at 10% (or 18% if the asset disposed of is a residential property) on any capital gains falling within the basic rate band.

If you have income taxable at the higher rate of 40% and/or the additional rate of 45% your capital gains are taxed at the 20% (or 28% if the asset disposed of is a residential property) rate.

So if your total taxable income and gains after all allowable deductions – including losses, personal allowances and the CGT annual exemption – are less than the upper limit of the basic rate income tax band (£33,500 for 2017/18), the rate of CGT is 10% or 18%. For gains (and any parts of gains) above that limit the rate is 20% or 28%.

For the tax year 2017/18, most people start paying higher rate income tax only on income over £45,000 although this depends on whether they have any other allowances.

Look at the example Jon part one to see how this works.

If you live in Scotland and are a Scottish taxpayer, the same rules as explained above apply to you. You must consider your total income and gains in relation to the UK rates and bands to work out your CGT, even if you pay income tax at the Scottish rates and bands on your salary, self-employed profits or pension.

Look at the example Jon part two to see how this works.

Back to the top

What is the annual exemption?

Each tax year, most individuals who are resident in the UK are allowed to make a certain amount of capital gains before they have to pay CGT. This is because they are entitled to an annual tax free allowance, called the annual exemption or annual exempt amount.

For 2017/18 you may make gains of £11,300 tax free. Any unused exemption cannot be carried forward.

Individuals who are resident in the UK, but not domiciled here, and who claim the remittance basis of taxation are not entitled to the annual CGT exemption.

Does each spouse or civil partner get their own CGT exemption?

Yes, they do.

Back to the top

Do I have to pay CGT when I gift an asset?

If you gift an asset to someone, you may have to pay CGT. The rules you follow depend partly on who you make the gift to.

Do I have to pay CGT when I gift an asset to my spouse/civil partner?

No, you do not pay CGT when you make a gift to your husband, wife or civil partner - as long as both of the following apply:

  • you lived together for at least part of the tax year in which you made the gift; and
  • the gift is not of ‘trading stock’ (trading goods bought for resale).

However, if your husband, wife or civil partner later sells or otherwise disposes of the asset, they will have to pay the tax on any gain made over the total period of ownership, since the date it was first acquired by you, falling after 31 March 1982.

If you are separated or divorced or your civil partnership has been dissolved, read our section below on what happens on the breakdown of marriage or civil partnership.

It is worth keeping a note of what the asset cost you, as your spouse or civil partner may need this to work out their CGT when they dispose of the asset.

Look at the example Ann to see how this works.

Do I have to pay CGT if I make a gift to another family member?

When you make a gift to a family member or other person you are 'connected' with (as described below) – other than your spouse or civil partner – you need to work out the gain or loss. This also applies if you dispose of an asset to them in any other way, for example, you sell it to them for less than it is worth.

In these cases, you may have to use the asset’s market value, rather than the value of the actual proceeds you receive, to work out the gain or loss.

If you make a capital gain, you may have to pay CGT.

A connected person in this context could be, for example:

  • your husband, wife or civil partner – but you do not need to calculate a gain in this case;
  • your brothers, sisters, parents, grandparents, children, grandchildren and their husbands, wives or civil partners;
  • the brothers, sisters, parents, grandparents, children, grandchildren of your husband, wife or civil partner - and their husbands, wives or civil partners;
    certain trustees;
  • a company you control.

You must get a valuation of the asset at the time you made the gift and use this value in place of any amount you received for the asset – usually nothing, if it is a gift – to work out your gain or loss. You can agree the valuation with HMRC before you submit your tax return by completing form CG 34. You can find this form on the GOV.UK website.

If you make a loss on a gift you make to a connected person you can only deduct the loss from gains you make on gifts or other disposals to the same person.

Back to the top

What if I sell assets I own jointly?

Each of you is usually liable to tax on your half of any gain arising, assuming the asset is owned equally. If it is not, you are each assessed to tax based on your share of the underlying asset.

Back to the top

How do I report capital gains to HMRC?

If you normally complete a tax return, you report your capital gains on your self assessment tax return, using the capital gains pages. You can find the paper forms on the GOV.UK website.

You need to use these pages if your gains are more than the annual exemption for the year or if your sales proceeds are more than £45,200 (for 2017/18) even if your gains are less than £11,300 (for 2017/18).

I do not normally complete a tax return. How do I report my gains?

You have a choice.

You can report your gains using the online service on GOV.UK. You need a Government Gateway account to do this, which you can set up as part of the reporting process. If you report your gains in this way, you will activate your personal tax account, if you have not already activated this. This means you do not need to wait until after the end of the tax year to report your gains.

Alternatively, you can contact HMRC and register for self assessment by completing online form SA1, which you can find on the HMRC website, or telephoning the self assessment helpline. You can find the details on the GOV.UK website. You should tell HMRC by 5 October following the end of the tax year for which you have CGT to pay or losses that you want to notify to them for carrying forward.

If you are unlikely to need a tax return in the future, as soon as you have sent in this tax return, write to HMRC requesting that you be removed from self assessment so that they do not keep on sending you tax returns.

Back to the top

Are any assets free from CGT?

Yes and some of the most common examples are:

  • Private motor cars
  • Gifts to UK registered charities
  • Some Government securities
  • Personal belongings where the sale proceeds are less than £6,000
  • Prizes and betting winnings
  • Cash
  • Assets held in ISAs
  • Foreign currency held for your own use.

The sale of your main home is usually free of CGT but read our section on this below. Note carefully that this tax free status does not extend to second homes or let property.

I have sold an asset for £5,000. Is this tax free?

It depends on what the asset was.

Shares are not exempt from CGT.

But a sale of a painting, jewellery or piece of furniture, for example, would qualify to be free from CGT as they are personal belongings. To qualify in this way, the asset has to be tangible – something that can be touched.

My husband and I sold a painting for £10,000. Will that be free of CGT?

Yes, it will because each of you has sold your half share for less than £6,000.

I have just sold a ring for £9,000. Is the whole amount liable to CGT?

CGT is a tax on the profit you have made. If we assume the ring originally cost £2,000, then the gain would be £7,000.

There is a special rule to give some relief here, recognising that if the sales proceeds had been £6,000 no CGT would have been due at all.

The gain is restricted to a maximum of: (Proceeds of sale less £6,000) X 5/3.

In this case, that means that only £5,000 would be liable to capital gains tax – (£9,000 - £6,000) x 5/3 = £5,000.

I have a table and 6 chairs that we are told will sell together for £12,000. Presumably because each item is worth less than £6,000, the whole amount is tax free?

No, in these circumstances where assets form sets and are sold together, they are treated as one asset for CGT purposes.

If, instead, the assets were sold separately it is likely they could be treated as separate assets.

Be careful, this does not mean that you could gift the table to a family member and then a couple of chairs, and so on. The law makes it clear that such gifts would form a series of transactions and be linked together with the higher value.

What is the date of disposal?

The date of disposal is the date that you enter into an unconditional contract.

This means that for property, this is the date that contracts are exchanged and not the date of completion when you actually take possession of the property.

For shares, it is the date the bargain actually took place and not the date of the contract note or the date of settlement.

If, instead, you enter a conditional contract, the relevant date is the date when the conditions are satisfied.

What if I get some sale proceeds at a later date?

When you sell an asset, sometimes you receive only part of the money at the date of sale. You may receive further amounts later and some may be dependent on future events. This is called deferred consideration.

Depending on the type of deferred consideration involved, you may need to take it into account immediately when working out your gain or loss for the disposal even you do not receive it until sometime later.

Generally, if you know the amount of money that you will be receiving, even if it not payable until a later time, then you include it when calculating the gain or loss.

For example, if the deferred amount consists of an immediate payment followed by a number of annual instalments, the figure of total proceeds is known in the year of disposal and should be included in your CGT computation even though the actual money will not be received until later.

We are not going to look here at the situation where the amount of the deferred payment is not known as this is more complicated and may require a valuation of the deferred amounts.

Where the disposal proceeds for an asset are payable by instalments, you may, in certain circumstances, ask HMRC if you can pay any CGT due by instalments.

This relief is available where the instalments as set out in the contract for sale of the asset:

  • begin no earlier than the date of disposal of the asset; and
  • extend over a period exceeding 18 months; and
  • continue beyond the date on which the tax would otherwise be due and payable.

Back to the top

What if I make a loss?

You first set any loss against any gains in the same year even if the gains are covered by your annual exemption.

When you take your gains from your losses for the year, if you still have losses remaining you should let HMRC know so that you can use the loss in a later year.

You cannot claim a loss made on an asset that is exempt from CGT.

Look at the example Eileen to see how you can use a capital loss.

Can I claim losses for assets that are lost or destroyed?

If you have a capital asset that is lost or destroyed you treat this as a disposal.

If you receive compensation, the amount of compensation you receive is treated as the sales proceeds.

If you do not receive any compensation, your sales proceeds are effectively nil. So you may be able to claim relief for a loss.

This is similar to the negligible value claim for shares.

Back to the top

What if I sell my own home?

There is no CGT on the sale of your own home provided you have lived there throughout the time you owned it. This also applies if your home is a fixed caravan or houseboat.

If you rented out a room in your house, there will be no capital gain if the lodger shares your living rooms even though they also have a room of their own.

Otherwise, there are special rules if you lived elsewhere or you let your home for part of the time before you sold it. Please contact HMRC for more information.

If you have more than one house, you have up to two years from purchase of the second home to decide which one you want to be your main residence for CGT purposes.

You need to let HMRC know what you decide within those two years, otherwise they decide which one is your main residence based on the facts.

What if I use my home for my business?

A lot of people run their businesses from home. If you do, you need to look at how you have used your home when you sell or dispose of it before you can work out if there is any CGT to pay.

What if I use rooms for both business and personal purposes?

If you use a room in your home for both business and private purposes – for example, you use a room as an office, but you also use it as a guest bedroom – your home will probably be exempt from CGT when you sell it.

What if I use a room solely for business purposes?

If you use any part of your home exclusively for business purposes – for example part of your home is used as a workshop for your business – that part will not be exempt from CGT. But you will still get the relief on the part used as your main home. This means that if you sell your home at a profit, you have to work out the amount of relief due and work out if there is any CGT to pay.

Look at the example Ailsa to see how business use of your house affects your CGT.

Back to the top

Will I get a capital gain if I sell some shares?

Below we try to explain as simply as possible the rules that apply to the purchase and disposal of your shares in public companies such as BT plc or Tesco plc. It is intended to help you work out the capital gain or loss if you have disposed of shares.

We normally refer to purchases and sales as these will be the most common events, but remember that a CGT charge can also arise when shares are gifted.

If your circumstances are more complicated – for example if there has been a reorganisation of your shareholding by the company involved or if you got some free shares – you should seek further advice.

Shares of the same class in the same company are identical. Suppose you have a holding of 10,000 Albatross plc 25p ordinary shares acquired at different times for different prices. You then sell 2,000 shares. To calculate the gain you need to know firstly, which shares you have sold and secondly, how much they cost.

For historical reasons, shares of the same class in the same company may be grouped in different ways. The following list shows the order that identifies which shares you have sold:

  1. purchases on the same day as the sale or disposal;
  2. purchases within 30 days after the day of sale or disposal;
  3. the rest of the shares you hold;
  4. purchases more than 30 days after the day of sale or disposal.

Any shares you held before 31 March 1982 are treated as if you bought them at what they would have cost on that date – we call this the 31 March 1982 value.

What if my shares lose all or most of their value?

Sometimes shares you own may lose all or most of their value. This happens when the company involved either just stops trading or goes into liquidation or receivership.

If you own shares that are now of no value and therefore worthless, or almost worthless, you might be able to make a ‘negligible value claim’.

When you make a negligible value claim, if all the conditions are met, you are treated as if you sold the shares and then bought them back again at their value on the earliest of the following dates:

  • the date that HMRC receive the claim; and
  • a date you specify on the claim that may be in either of the two previous tax years, if the shares became worthless or almost worthless at that time or earlier. This is important if you have large gains in one of the two years to help you minimise any capital gains tax bill.

You then work out your capital loss as if you sold the shares for their negligible value on that date.

HMRC maintain a list of companies whose shares they consider have become worthless on the GOV.UK website.

There is no requirement to make a claim, so for example you should not do so if it would mean wasting your annual exemption.

If the shares that have become worthless are not in a company quoted on the stock exchange, but in a private company, for example, a family trading company, you may be able to set off your loss against income of the same tax year in which the loss is made or the previous one. For more detailed information have a look at HMRC helpsheet 286, which you can find on the GOV.UK website.

If you do not normally complete a tax return, you should write to HMRC to claim any captial losses or you may lose them. You can find an address for HMRC on the GOV.UK website. In these circumstances you normally have four years from the end of the tax year when you want to make the claim to actually make the claim for losses.

Back to the top

What is entrepreneurs' relief?

Entrepreneurs' relief may apply to you if you dispose of the whole or part of a trading business, or shares in a trading company in which you have a qualifying interest. It can also apply to the disposal of assets which were used in a business after you have ceased trading.

You have to make a specific claim for entrepreneurs' relief on your self assessment tax return. You must claim the relief in respect of a qualifying business disposal on or before the first anniversary of the 31 January following the tax year in which you made the qualifying business disposal.

We do not explain the relief further here, but you might wish to read HMRC’s Helpsheet 275 for more information. You can find this on the GOV.UK website.

This can be a complicated area so if you think the relief applies to you, you should contact HMRC or a tax adviser for further advice. You can find a tax adviser on the Chartered Institute of Taxation website.

Back to the top

What happens on the breakdown of marriage or civil partnership?

This is a stressful time for all concerned, but you do need to consider tax issues as the costs might be significant. As well as this section you should read the section on personal allowances.

After I separate from my spouse/civil partner, can I still transfer assets between us free of CGT?

You can only do this up to the end of the tax year in which you separate – so if you separate in November 2017, you can only transfer assets between you free of CGT up to 5 April 2018.

I have stayed in the jointly owned family house and my wife has moved out. What happens when the house is sold?

As the house is jointly owned, your share of the proceeds will remain free of CGT as it is your main home. Any profit on your wife’s share may be liable to CGT. If the property is sold within 18 months of her moving out, then the exemption from CGT for her main residence continues; after that a proportion of her gain will become liable to tax. Before 6 April 2014, this exemption continued for three years from the date of leaving the property.

You wife will still have her annual exemption to use against this gain, if she has not used it elsewhere, and will be able to use any capital losses she has.

My husband has moved out of our jointly owned home and I am staying there with the children as we agreed on separation. What happens when the house is sold?

There is a special relief available where, in connection with a permanent separation or divorce or dissolution of civil partnership, the leaving spouse or civil partner spends more than three years away from the former home. The conditions are:

  • the property is transferred to the remaining spouse or civil partner as part of a financial settlement; and
  • no other property becomes a main residence, for the purposes of this relief, of the leaving spouse or civil partner; and
  • the property in question remains the main residence of the remaining spouse or civil partner.

If these conditions are met, the leaving spouse or civil partner will still obtain full relief from CGT on the sale of the property. Otherwise there is the possibility that some CGT will be payable – see question above.

I own the family house but my wife and I have separated and I now have my own flat. What happens when the family house is sold?

You should consider the example Harold to see what happens in this situation.

Back to the top

Examples

Neil – sale of house – working out gain

Neil bought a holiday house in March 1979 for £10,000. Neil already had another home of his own. By March 1982 the value had increased to £25,000.

In July 2017 Neil sold the holiday house for £200,000. He had legal costs of £1,000 on the purchase of the house and £2,500 legal and estate agents costs on the sale. Neil had improved the house by building an extension costing £15,000 in May 2001.

Neil's gain is:     £
Proceeds     200,000
Less: March 1982 value 25,000  
  Cost of extension 15,000  
  Legal expenses on purchase 1,000  
  Legal expenses on sale 2,500  
      43,500
  Chargeable gain   156,500


Jenny – part disposal

Jenny sells 1 acre of land for £10,000 which is part of a 5 acre field. The other 4 acres are worth £70,000 at the time she makes the disposal, as they are more likely to have development value in future than the acre just sold.

Jenny paid £20,000 for the whole 5 acres 15 years ago.

In working out her capital gain on disposal of the 1 acre, she will deduct a cost figure calculated as follows:

Cost £20,000 x £10,000 (sale proceeds)
  £10,000 (sale proceeds) + £70,000 (value of part retained)

This works out to: £20,000 x £10,000/£80,000 which equals £2,500

So, without taking anything else into account, Jenny's gain on the 1 acre sale will be her proceeds of £10,000, less a cost of £2,500 = £7,500

Jon – calculation of CGT

Part one

In 2017/18 Jon’s taxable income, after all allowable deductions and the personal allowance, is £23,500. Jon is not a Scottish taxpayer.

The upper limit of the income tax basic rate band is £33,500.

In November 2017, Jon sells an asset, making a gain of £26,200. Jon has no allowable losses to set against these gains, and the annual exemption for 2017/18 is £11,300.

Jon’s taxable income is £10,000 less than the upper limit of the basic rate band (£33,500 - £23,500).

Jon sets the annual exemption against the gain leaving £14,900 taxable (£26,200– £11,300).

The first £10,000 of the £14,900 gain is taxed at 10% and the remaining £4,900 is taxed at 20%. If the asset John sold is a residential property (but not his main home), the rates of tax he pays are 18% on the first £10,000 and 28% on the remaining £4,900 of the gain.

Part two

In part two, we consider the position if Jon is a Scottish taxpayer.

Jon’s taxable income for 2017/18, after all allowable deductions and the personal allowance, is £32,000.

The upper limit of the income tax basic rate band in Scotland is £31,500 – so Jon pays Scottish income tax at the basic rate of 20% on £31,500 of his taxable income, and Scottish income tax at the higher rate of 40% on £500 (32,000-31,500) of his taxable income.

In November 2017, Jon sells an asset, making a gain of £26,200. Jon has no allowable losses to set against these gains, and the annual exemption for 2017/18 is £11,300.

When looking at his gain of £26,200, Jon must use the UK rates and bands. So, Jon’s taxable income is £1,500 less than the upper limit of the UK basic rate band (33,500-32,000).

Jon sets the annual exemption against the gain leaving £14,900 taxable (26,200-11,300).

The first £1,500 of the £14,900 gain is taxed at 10% and the remaining £13,400 is taxed at 20%. If the asset John sold is a residential property (but not his main home), the rates of tax he pays are 18% on the first £1,500 and 28% on the remaining £13,400 of the gain.

Ann – gift of asset to husband – later sale

Ann bought a cottage in 1996 for £50,000. In August 2004 when the cottage was worth £90,000 she gave it to her husband, James. In June 2017 James sold the cottage for £140,000.

James’s gain on the property before any other deductions will be £140,000 less the original cost of £50,000, that is a gain of £90,000 and not £50,000 (£140,000- £90,000)

Eileen – loss on sale of shares

Eileen bought some shares in August 2002 for £22,000. In August 2017 she sold them for £5,000.

Eileen has made a loss of £17,000, which she could use against any gains she makes in the same tax year 2017/18, or she can carry the loss forward against any gains she makes in future years.

Ailsa – home used as business premises

Ailsa uses 30% of her home exclusively as business premises and the other 70% is used as the area where she lives. When she later sells her home she makes a gain of £120,000.

Ailsa is entitled to Private Residence Relief of £84,000 on the part used as her home (70% of £120,000).

She will have CGT to pay on the remaining gain of £36,000 (£120,000 less £84,000).

Harold – sale of family home on separation

Harold and his wife Sandra separated in June 2016.

The family home was purchased in December 1995 and was held in Harold's name only.

Harold moved out of the family home in June 2016 and the house is sold in September 2017. As this is within 18 months of the date Harold moved out of the house, there will be no taxable capital gain.

If however the house is sold in December 2019, the first 18 months after he moved out of the house continued to qualify for relief from capital gains tax and only the remaining two years will be treated as taxable. The total period Harold owned the house is 24 years. Of this only two years are taxable.

If the gain on the sale of the house is £144,000, the amount on which Harold is liable to CGT is:

2/24 x £144,000 = £12,000

The £12,000 will be reduced by Harold's annual exemption for 2019/20 and he will just pay CGT on the balance, if any.

Back to the top

Where can I find more information?

You can find more information on CGT on the GOV.UK website.

For information on rates and allowances for CGT, look at our 'useful tools section'.

You may also find the following sections of this website helpful:

Back to the top