Capital gains tax (CGT)

Capital gains tax (CGT) is a tax on the increase in value of your possessions such as:

  • A second home
  • Antiques or shares,

During the time you have owned them. 

Any tax is due when you dispose of them. This is usually by selling them or giving them away. 

You need to have made a certain amount of profit on your items to be taxed on them. This amount depends on whether you're a basic-rate or higher-rate taxpayer, and what the current tax-free allowance is for the tax year.

Typical investments that you might have to pay capital gains on include:

  • A second property
  • Shares
  • The sale of a business
  • Valuables such as jewellery, antiques and art

You don\'t have to pay CGT if you sell a car, or if you make a profit on selling your own home.

CGT allowance in 2018/19

The capital gains tax allowance in 2018/19 is set at £11,700. This is the amount in capital gains you can make this tax year before any tax is due.

The table below explains your CGT allowance for the tax years 2017-18 and 2018-19. 

If your assets are owned jointly with your spouse or civil partner, you can use both of your allowances, which can effectively double the amount you can make before CGT is due. 

However, if you choose to transfer any of your assets to your partner, this must be a genuine outright gift. This means that the ownership of the share is transferred and your partner can choose what they do with their share. 

The amount you can get in couple\'s allowance is also included below. 

Capital gains tax allowances: a summary

Year

2017-18

2018-19

Allowance for an individual

£11,300

£11,700

Couple\'s allowance (note you can only use this if you are married or in a civil partnership)

£22,600

£23,400

CGT rates 2018/19

Since April 2016, two different rates of CGT have been charged, which vary depending on the asset you\'ve made a profit on and your tax band. 

If you have made a capital gain on an investment that isn\'t a property:

  • Basic-rate taxpayers pay CGT at 10%
  • Higher-rate taxpayers and additional-rate taxpayers pay CGT at 20%

If you have made a capital gain on a second home or buy-to-let investment:

  • Basic-rate taxpayers pay CGT at 18%
  • Higher-rate and additional-rate taxpayers pay CGT at 28% 

Calculating CGT rates

If your income makes you a basic-rate (20%) taxpayer but you have made large enough capital gains to push you into a higher-rate tax bracket, you will have to pay the higher rate of CGT on the amount that takes you over the threshold. 

This works as so:

Step 1

You need to work out how much taxable income you\'ve earned from your salary, pension or other type of income. 

Step 2

This can be done by deducting your tax-free personal allowance (£11,850 in 2018-19) from your total income.

Step 3

Calculate your taxable capital gain by deducting the tax-free CGT allowance (£11,700 in 2018-19) from your profits

Step 4

Add your taxable capital gain to your taxable income.

For a basic-rate taxpayer, the maximum taxable income you can earn is £34,500 in 2018-19. This calculation is the higher-rate threshold minus the tax-free personal allowance (£46,350 - £11,850).

Basic rate tax

If your taxable income and your taxable capital gain added together is less than £34,500, you’ll pay basic-rate CGT (10% on most investments, 18% on second homes).

Higher tax rate

If the two combined figures put you over a higher tax threshold, you’ll pay the basic-rate (10% or 18%) on the part up to the threshold, and the higher rate (20% or 28% for second homes) on the rest.

Example capital gains tax calculation for 2018-19

Calculation

Amount

Capital gain

£20,000

Losses

£1,400

Annual allowance

£11,700

Taxable gain = £20,000 - £1,400 - £11,700

£6,900 taxable gain

CGT rate

10% tax rate

Capital gains tax payable - £6,900 x 10%

£690 payable

When does my CGT bill need paying?

Capital gains must be added onto your tax return. You can also report them in the Report Capital Gains Tax online service from the government.

If you don’t usually fill in a tax return you can report your capital gains through the online HMRC service.

If you usually fill in a tax return capital gains must be added onto your tax return too, regardless if you’ve also used the online service.  

You must show how you calculated each capital gain. If you have lost money through an investment (for example, selling a second home at a loss) this should also be included this on your tax return.

Current rules state that any CGT due on the sale of property is payable by 31 January after the end of the tax year in which the sale occurred. Depending on the date of the sale, this can give you between nine months and 18 months to pay. 

Note: From April 2019 onwards, CGT on property sales is payable within 30 days.

Tax free capital gains

Tax is not payable on all capital gains. Listed below are examples of tax-free capital gains:

Capital gains tax on cars

  • The sale or gifting of private cars – does not include cars you use for business

Capital gains tax on gifts to spouses or charity

  • Gifts between husband and wife or registered civil partners, although tax may be due later if the new owner sells the item
  • Charitable donations

Capital gains tax on property sales

  • The sale of your main home (or only home)
  • Landlords are usually liable for CGT when they sell a rental property
  • If it has been your main home at some time in the past, you can claim tax relief for the last eighteen months of ownership

Capital gains tax on personal possessions

  • Personal possessions (sometimes called personal ‘chattels’) such as antiques, worth no more than £6,000
  • Wasting assets – which are possessions with a useful life of 50 years or less e.g. a natural resource like an oil well or a piece of machinery

Capital gains tax (CGT) on financial products

  • Lottery winnings. Pools etc.
  • Isa’s or peps
  • UK government gilts and premium bonds
  • National savings & investments products pensions and child trust funds
  • Proceeds from life insurance policies, unless bought second-hand
  • Most corporate and local authority bonds you’ve owned directly
  • Building society permanent interest-bearing shares (pibs) and sharia-compliant equivalents
  • Shares while held in approved share incentive plans through your employment 
  • Some schemes to encourage investment in new and growing businesses

Capital gains tax (CGT) and inheritance

  • Whatever you leave on death, however, inheritance tax may be payable instead