Capital Gains Tax
A capital gain arises when certain capital assets are sold at a profit.
The gain is the sale proceeds (net of selling costs) less the purchase price (including acquisition costs).
From 6 April 2016 capital gains tax (CGT) is charged at the rate of 10% on gains (including any held over gains coming into charge) where net total taxable gains and income is below the income tax basic rate band threshold.
Gains or any parts of gains above the basic rate band are charged at 20% as shown in the ‘Exceptions to the CGT rates section’ below.
Entrepreneurs’ Relief (ER) may be available on certain business disposals and has the effect of charging the first £10m (from 6 April 2011) of gains qualifying for the relief at an effective rate of 10%.
The relief will apply to gains arising on a disposal of a trading business includes professions but only includes a property business if it is a ‘furnished holiday lettings’ business.
Restrictions on relief for an ‘associated disposal’ apply in certain situations, including the common situation where a property is currently in personal ownership, but is used in an unquoted company or partnership trade in return for a rent.
CGT annual exemption
Every tax year each individual is allowed to make gains up to the annual exemption without paying any CGT.
The annual exemption for 2018/19 is £11,700 (2017/18 £11,300).
Exceptions to the CGT rates
The rates of CGT are generally 10% and 20%.
However 18% and 28% rates apply for chargeable gains on residential property that does not qualify for private residence relief.