Capital Gains Tax

Capital Gains Tax (CGT) is payable on gains you make when you sell, transfer or exchange some types of asset, such as second and subsequent properties, shares, stocks, antiques, wine and certain business assets. CGT can also be payable when you receive a compensation or insurance payout. It is only applied to a gain made, not necessarily the net amount that you receive.

Capital Gains Tax Allowance

As with Income Tax, there are allowances and reliefs in place which limit the amount of CGT you will have to pay. This amount is set by the government each tax year, and gains made up to this amount will be tax-free. You will be taxed on gains above this threshold, depending on your income tax bracket.

Year 2016/17
Allowance £11,100
Rate (Basic band taxpayers) 10%
Rate (Higher band taxpayers) 20%

These rates don't apply to sales of second homes. If you sell a second home you will pay either 18% or 28%, depending on your tax bracket.

If you're a basic rate taxpayer but you've made large enough taxable capital gains to push you into the higher rate tax bracket (£43,000 in 2016/17), you will pay higher rate CGT on the portion of your gains over the threshold.

If you are a trustee and you sell or transfer assets from a trust on behalf of the beneficiary, you will usually need to pay CGT at 28%. For more information about trusts, visit our guide to trusts.

If you own a business

You may qualify for Entrepreneur's Allowance if:

  • You are a sole trader or partner, selling part or all of your business or its assets, or
  • You control at least 5% of a company whose assets you're selling
  • You sell assets from your business within three years of closing down

This tax relief reduces the rate of CGT to 10% on the first £10m you make in your lifetime from selling assets in this way. Anything else you make will be taxed in the usual way.

Exemptions from CGT

The following types of capital gains are tax-free:

  • Gifts between husband and wife or civil partners
  • Gifts to charities
  • Sale of your only or main home
  • Gift or sale of private cars
  • Gift or sale of personal possessions worth less than £6,000. More valuable items may also be exempt if their useful life is 50 years or less (for example a boat)
  • NS&I products, pension funds, ISAs
  • Life insurance policy payouts
  • Betting, pool and lottery winnings
  • Government bonds (gilts)
  • Money and assets left on death (although inheritance tax may be payable)

Your CGT responsibilities

If you've made capital gains greater than your allowance for the current tax year, you must declare them on a self-assessment tax return and pay the tax that you owe.

You can reduce the amount of CGT payable on your gains by investing through an ISA – read our ISA guide for more information.

The Financial Conduct Authority does not regulate taxation and trust advice.

Last updated: 05 April 2016