Capital Gains Tax (CGT)

What is Capital Gains Tax?

Capital Gains Tax (CGT) is a tax on the profit (gain) made when you sell or otherwise dispose of an asset that has increased in value. The tax is charged on the gain, not the total proceeds received.

“Disposing of” an asset includes:

• Selling it
• Gifting it
• Exchanging it
• Receiving compensation for it

Certain assets are exempt from CGT, and you may not have to pay CGT if your total gains in a tax year are within your annual tax-free allowance.

Trading vs holding an asset

It is important to distinguish between trading and investment, as this affects how profits are taxed.

• Investment scenario: For example, buying a property, renting it out, and later selling it. Any profit is usually subject to CGT.
• Trading scenario: For example, buying a property with the intention of renovating and selling it at a profit. HMRC may treat this as a trade, meaning profits could be subject to Income Tax and National Insurance instead of CGT.

The correct treatment depends on the facts and intentions at the time of purchase.

What you may pay CGT on

CGT can apply to gains on:

• Personal possessions worth more than £6,000 (excluding most cars)
• Property that is not your main residence
• Your main home, if it has not always qualified for full relief
• Shares and investments held outside tax-efficient wrappers (such as ISAs)
• Business assets

If an asset is jointly owned, each owner is taxed on their share of the gain.

Various reliefs and exemptions may reduce the amount of CGT payable.

Capital Gains Tax planning

There are a number of legitimate ways to manage your CGT position, depending on your circumstances:

• Use your annual exemption: Make use of your CGT allowance each tax year where available.
• Transfers between spouses or civil partners: Transfers are generally made at no gain/no loss, which can allow better use of allowances and tax bands.
• Use of ISAs (“Bed and ISA”): Investments held within an ISA are generally free from CGT.
• Use of losses: Capital losses can be offset against gains to reduce your overall liability. Losses must usually be reported to HMRC within four years.
• Pension contributions: While pensions do not directly reduce a capital gain, contributions can extend your basic rate band, which may reduce the rate of CGT payable in some cases.
• Gifts to charity: Gifts of qualifying assets to charity are generally free from CGT and may also attract Income Tax relief.
• Enterprise Investment Scheme (EIS): Certain investments may qualify for CGT deferral or exemption, subject to conditions.
• Gift Hold-Over Relief: This may be available when gifting certain business assets or qualifying shares.
• Chattels and wasting assets: Some tangible movable items (chattels), particularly those with a predictable life of less than 50 years, may be exempt from CGT.
• Private Residence Relief (PRR): Relief may be available on the sale of your main residence, although the position can be more complex if the property has been let or used for business purposes.

The availability and effectiveness of these options will depend on your individual circumstances and current tax legislation.

How we can help

We can help you understand your Capital Gains Tax position and identify appropriate reliefs and allowances.

Our support includes:

• Reviewing potential gains before disposal
• Advising on available reliefs
• Helping you plan disposals in a tax-efficient manner
• Ensuring accurate reporting to HMRC