Capital Gains Tax – What is Capital Gains Tax?
Capital Gains Tax is the tax you must pay when you sell or pass on a private asset that has increased in value.
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If you make a purchase then 'dispose of' this item for more than its original value, you will be liable to pay tax on the gains – that is, the profit you make from selling the asset, rather that its total value.
You can calculate gains by subtracting the price you paid for the asset from the price you sold it on for. For example, you buy a car for £10,000 then sell it for £15,000 – the gain is £5,000, so that £5,000 is taxable.
Bear in mind that ‘disposing of’ your asset isn’t just selling. Giving your asset to someone else, swapping it, or getting compensation for it (such claiming insurance if the asset is lost or damaged) all counts as ‘disposal’, and you will be liable for Capital Gains Tax under any of these circumstances.
Which assets can be taxed?
‘Chargeable assets’ are those assets which are liable for Capital Gains Tax. In the UK, chargeable assets include:
- Most personal possessions worth over £6,000. This may include jewellery, antiques, artwork, or collectibles, but usually doesn’t include cars.
- Whileyour home is usually exempt there are some exceptions. You may need to pay Capital Gains Tax on your main property if you rent it out, use it for business, or if it’s particularly big (anything over 5,000 square meters).
- Any additional property that isn’t your main, or only, home.
- Shares or bonds that aren’t in an Individual Savings Account (ISA) or Personal Equity Plan (PEP).
- Any business assets, including vehicles, land and property, machinery, registered trademarks etc. However, only self-employed sole traders and partnerships pay Capital Gains Tax. Limited companies and other kinds of organisations are liable for Corportation Tax instead.
Which assets are not taxed?
You only pay Capital Gains Tax on gains that exceed £11,700. If your total annual gains fall under this threshold, you won’t have to pay any Capital Gains Tax, regardless of which assets you have disposed of.
Usually, gifts to charities, your spouse, or civil partner are tax-free, as well as anything with a ‘limited lifespan’, such as clocks, watches, or machinery.
Capital Gains Tax across Europe
Not all countries implement Capital Gains Tax, and the rate can vary from country to country. You may need to pay Capital Gains Tax even if you have overseas assets, and there can be different rules in each country, depending on your residency and citizenship status.
Check out HM Revenues and Customs for more information on Capital Gains Tax in the UK and abroad.