Capital Gains Tax is the tax on profits that are made when you ‘dispose’ an asset, and the item’s value has increased.
If you: swap an asset for something else, receive compensation for an asset, give an asset to someone or sell it, then this constitutes as disposing of an asset. Assets are usually disposed of by being sold.
Examples of assets include shares, antiques, or property.
The levy applies to the profit only, not the entire sum of money that you received for the asset.
Calculating Capital Gains Tax
To calculate profits, find out how much money you sold the item for. Then, subtract the amount of money you paid for the item in the first place. This leaves you with your profits.
So, if you bought a statue for £10,000, and then sold it for £50,000, you have made a profit of £40,000.
From 6 April 2016, basic rate taxpayers will pay a rate of 10 per cent, while higher rate taxpayers will pay a rate of 20 per cent, as announced in the 2016 Budget. However, when selling residential property that was a second home, you will have to pay 18 per cent or 28 per cent respectively.
If your income places you in the basic rate for income tax, but disposing of an asset gains you enough money to rise above the threshold into the higher rate of income tax, then you will need to pay the higher rate of Capital Gains Tax. This will only apply to the portion of gains which pushed you above the income tax threshold.
You will not have to pay Capital Gains Tax on the full amount of gains that you earn, as everyone has a tax-free allowance – known as the Annual Exempt Amount, which is £11,100. If you sell an asset and it doesn’t cross this figure, then you will not have to pay Capital Gains Tax.
If you give a gift to either your spouse, civil partner, or to a charity, in most cases you will not need to pay Capital Gains Tax on the asset.