Capital Gains Tax (CGT)

Capital Gains Tax is levied on gains arising from the ‘disposal’ of certain assets.

Basic rate tax payers are charged at 10%, whereas higher and additional rate tax payers must pay 20%. As with Income Tax, each UK resident is given an annual allowance/exemption of £11,100 per annum (2016/17). When selling residential property there is an additional 8% surcharge applied to the 10% and 20% rates, this surcharge also applies to carried interest.

For our private clients, disposals typically take the shape of selling shares in collective investments or the sale  of a buy-to-let property.

However individuals should take care as disposal does not necessarily mean the sale of an asset. It includes any transfer of ownership or the derivation of a capital sum from an asset. Disposals that can give rise to CGT might take the form of:

  1. The straightforward sale of an asset
  2. Gifts of certain assets to individuals or Trusts
  3. A capital sum is received for compensation for damage to assets

Exempt Disposals

There are a number of disposals that are exempt from tax. These include:

  • The sale of your main home (principle primary residence)
  • Private motor vehicles
  • NS&I certificates and premium bonds
  • Government and most corporate bonds
  • Chattels
    • Disposal value does not exceed £6,000
    • Chargeable gain cannot exceed 5/3rds of the excess
    • Foreign currency
    • Gambling winnings
    • ISAs and CTFs
    • VCT shares
    • EIS shares (where income tax relief has been given and not withdrawn)
    • Woodlands
    • Disposals to charities, housing associations, national institutions
    • Shares held by employees in a share incentive plan

Entrepreneurs Relief

To encourage entrepreneurialism in the UK, the Government also provides additional relief aimed to reduce taxes due on the sale of a successful business on or after April 2008. Qualifying disposals under this relief are taxed at a reduced rate of 10%.

  • For gains made after April 2011, the relief cover the first £10m
  • From April 2008 – April 2011 the limit changed from £1m, to £2m and then to £5m
  • Broadly speaking, relief is available on the disposal of:
    • All or part of a business run as a sole trader
    • Shares in a trading company where the individual has 5% shareholding in the company
    • Share of a Partnership by a partner