This leaflet tells you when
you might have to pay CGT and can reassure you about when you do not.
Contents
If you sell an asset you may have to pay Capital Gains Tax (CGT).
An asset is something that you own – such as shares or property. You
may also have to pay CGT if you give away an asset.
How this leaflet can help
you
Have you sold something, such as shares, land and buildings, part
of your garden or an antique and wondered whether there was any tax
to pay?
Or you might be thinking of selling something or giving it away and
wish to know if you will have to pay any tax.
This leaflet may help you to decide if there might be Capital Gains
Tax to pay and what you should do about it.
This is only a short leaflet. It covers the most common cases. It
does not cover every case where you might have to pay CGT. You may
need to find out more before you can be sure whether or not you have
to pay CGT. We tell you on page 8 where you can find more information
and help.
Capital Gains Tax (CGT)
CGT is a tax on capital gains. A gain is an increase in value. You
normally only have to pay CGT when you no longer own an asset, that
is when you have disposed of it.
If you sell an asset
Typically, you have made a gain if you sell an asset
for more than you paid for it. It is the gain that is taxed, not the
amount you receive. The following simple example shows you how this
works.
Example 1
You bought some shares for £500.
You sell them for £2,000.
You have made a gain of £1,500 (£2,000 less £500).
If you give an asset away
If you give an asset away, you normally look at what
it is worth, not what you get for it. The same is true when you sell
it for less than its full worth in order to give away part of the value.
Example 2
Three years ago, you bought a flat costing £75,000 for your
daughter to use.
The flat is now worth £100,000.
You now give it to your daughter.
She might not pay you anything for it; or you might let her have it for
less than what it is worth, say she pays you £60,000.
Either way, you have made a gain of £25,000 (£100,000 less £75,000).
If you dispose of an asset you had
been given
You might dispose of an asset that you had received
as a gift. When you work out the gain you normally use the market value
of the asset when you received it.
Example 3
Your sister gave you a garage worth £5,000.
You did not pay anything for it.
Later, you sell the garage for £8,000.
You are treated as making a gain of £3,000 (£8,000 less £5,000)
If you have inherited an asset
If you inherit an asset, the estate of the person
who died does not pay CGT at that time. If you later dispose of the
asset, you work out the gain by looking at the market value at the
time of the death.
Example 4
Your brother had acquired some shares for £2,000.
When he died, he left them to you.
No CGT is payable at that time.
At the time of his death, the shares were worth £6,000.
Later, you sell them for £9,000.
You have made a gain of £3,000 (£9,000 less £6,000).
Some other cases where you might
have to pay CGT
You may also have to pay CGT if you dispose of part
of an asset or exchange one asset for another. In addition, CGT may
be payable if you receive a capital sum of money from an asset without
disposing of it, for example, if you receive compensation when an asset
is damaged.
What if I transfer an asset to my
husband or wife?
If you sell or give an asset to your husband or wife while you are
legally married and living together, that does not give rise to a CGT
charge.
If your husband or wife later sells the asset, he or she will work
out the CGT at that time by looking at what you paid for the asset.
What if I give an asset to charity?
If you give an asset to a registered charity you will not have to
pay CGT.
What assets might lead to a CGT
charge?
Most sorts of assets can lead to a CGT charge when you dispose of
them, for example
- shares in a company
- units in a unit trust
- land and buildings (but see ' What about my home? ')
- higher value jewellery, paintings, antiques and other personal
effects (see next section)
- assets used in a business, such as goodwill.
CGT is chargeable whether the assets are in the UK or abroad.
What assets do not lead to a CGT
charge?
Some assets are exempt. For example, you will not have to pay CGT
on
- your private car
- cash held in sterling
- any foreign currency held for your own or your family's personal
use
- jewellery, paintings, antiques and other personal effects that
are individually worth £6,000 or less (if you have a set, for example
a set of chess figures - you do not pay CGT if the value of the set
as a whole is £6,000 or less)
- Savings Certificates, Premium Bonds and British Savings Bonds
- UK Government stocks ("Gilts")
- assets held in an Individual Savings Account (ISA) or Personal
Equity Plan (PEP)
- betting, lottery or pools winnings
- personal injury compensation.
What about my home?
You will not have to pay CGT when you dispose of your home if all
the following conditions are met.
- Throughout the period that you owned it, it was your only home.
- You did actually use it as your home all the time that you owned
it.
- Throughout the period that you owned it, you did not use it for
any purpose other than as a home for yourself, your family and no
more than one lodger.
- The house and garden do not exceed 5,000 square metres (about one
and a quarter acres - roughly the size of a football pitch).
Even if not all of these conditions are met, you may still be entitled
to relief against all or part of the gain.
Shares and unit trusts
You may have bought or acquired in other ways shares or units in a
particular company or unit trust on a number of different occasions
and now dispose of some of them. If so, there are
special rules for identifying which of the shares or units you have sold
and for working out the gain.
Shares in the company where you
work
You may have to pay CGT when you sell shares in the company where
you work, but there are some special reliefs that may help you to keep
your tax bill down.
How do I work out the CGT that
has to be paid?
Start by listing all the assets that you have disposed of in the tax
year (6 April to 5 April in the following year). You can ignore exempt
assets and disposals that do not give rise to a CGT charge. You
may be able to ignore the disposal of your own home .
Work out the gain on each asset.
There are many reliefs available that reduce or defer CGT.
- Some reliefs are available to many people. For example, taper relief
reduces the amount of a gain charged to tax the longer an asset has
been held.
- Other reliefs are available only in special circumstances.
- You may deduct some of the costs of buying, selling and improving
assets when working out your gain.
- If you have made a loss, you may be able to set that against your
gains.
You can then add up the total of your gains less reliefs and allowable
losses to calculate your net gains for the year.
If the total of your net gains in a tax year is less than a certain
amount, called the annual exempt amount (AEA), you will not have to
pay CGT. For the tax year 2004-05 the AEA is £8,200.
If your net gains are more than the AEA you pay CGT on the excess.
When can I be sure that there
is no CGT to pay?
If the total value of all the assets that you dispose
of in a tax year (ignoring exempt assets) is less than the AEA, then
you will not have to pay CGT on those assets.
If you know that the total of the gains on the assets
that you dispose of (apart from exempt assets) is less than the AEA
even before thinking about losses and reliefs, then you will not have
to pay CGT on those gains. However, you may still have to show the
gains on your tax return.
Even if you have not disposed of any assets during a tax year you
may still have to pay CGT, for example, if the gains of a trust or
company with which you have some connection are attributed to you.
Next Steps
Unless you are sure that you do not have to pay CGT, you should ask
for further information. The reliefs might mean that you do not have
to pay any CGT this year.
If the only reason that you do not have to pay CGT is because you
have deducted losses from your gains, you will need further information.
This is because you can only use losses that arose in
1996-1997 or later if you have made a claim by notifying your Tax Office.
If you think that you might have losses that are greater than your
gains for the year, then you should find out more about CGT. If you
notify your Tax Office you may be able to use the losses to offset
gains in a future year.
Where to find out more about CGT
A good place to start is the Inland Revenue booklet CGT1
'Capital Gains Tax - an introduction' . It tells you more about
- when CGT may be payable
- what reliefs are available
- how to claim allowable losses
- when you might have trust or company gains attributed to you, and
- how to work out CGT.
It also tells you about the Helpsheets that
are available and how to find out the latest AEA and CGT rates .
How do I report the disposals
I have made and my gains?
When you have found out more, you may decide that you have to tell
the Inland Revenue about your gains.
If you receive a tax return and have to fill in the capital gains
pages, you should report your disposals and the gain or loss on each
disposal by completing the capital gains pages of the return. If you
were not sent these pages, you can ask for them from the Orderline.
The tax return tells you the latest date for sending it back.
If you have not received a tax return and need to report gains or
losses, you should contact your Tax Office. If you have gains to report
you must give your Tax Office the
details by 5 October following the tax year in which the gains arose.
Once you have reported your gains, you will be told how to pay any
tax that is due.
Please remember that if you are late in sending in a tax return, if
you do not tell your Tax Office about gains that should be included
in a tax return, or if you do not pay CGT at the right time then you
may face a penalty, interest and surcharges.
Further Information
We produce a wide range of leaflets. Two we have mentioned which you
might find useful are
CGT1 Capital gains tax. An introduction
COP1 Putting things right. How to complain.
Our leaflets are available at www.inlandrevenue.gov.uk and from any
Inland Revenue Enquiry Centre. Most are open to the public from 8.30am
to 5.00pm, Monday to Friday. Addresses are in your
local phone book under ‘Inland Revenue' and at www.inlandrevenue.gov.uk/local
You can get many leaflets from our Orderline by
- phone or textphone (for Minicom users) on 0845 9000 404 from 8.00am
to 10.00pm, every day except Christmas Day, Boxing Day and New Year's
Day
- fax on 0845 9000 604
- completing the on-line order form at www.inlandrevenue.gov.uk/contactus/staustellform.htm
- writing to
PO Box 37
St Austell
Cornwall
PL25 5YN.
Orderline calls are charged at local rates.
Your library or Citizens Advice Bureau may also have copies of some
of our leaflets, but may not have them all.
When our offices are closed, in the evening or at weekends, you can
get general advice on Self Assessment by phoning our Helpline on 0845
9000 444 . The Helpline is open from 8.am to 8.pm every day except
Christmas Day, Boxing Day and New Year's Day. |
