Tax and NI

12. Capital Gains Tax

Capital gains tax (CGT) is a tax on successful investments, such as those in property or shares. If you sell something for more than you paid for it, you may have to pay CGT.

12.1 Higher-rate income tax payers are liable to pay CGT at 28 per cent. For those paying the lower income tax rate, CGT is charged at a flat rate of 18 per cent.

• Capital gains are added to any other income.
• The first £10,100 of capital gain each year is tax free. A husband and wife or people in a civil partnership can each claim this allowance.
• CGT is payable on 31 January following the end of the tax year in which the gain is made.

12.2 Limited companies pay corporation tax on any capital gain.

• Capital gains are treated as part of the company's taxable profit.

12.3 The self-employed, like other individuals, pay CGT at a flat rate of either 18 or 28 per cent, depending on income tax paid.

12.4 CGT exemptions include increases in the value of your car and your principal private residence.

• If you work from home and have not claimed any part of your mortgage payments as a business expense, there is usually no CGT on the profits made from the sale of your house.
• Under certain conditions, some investment vehicles, life assurance policies and charitable gifts may also be exempt.

12.5 Capital losses can be set off against capital gains from the same year.

Any excess loss can be carried forward to be set off against future gains.

12.6 Individuals can claim entrepreneurs' relief on the first £10 million of gains made on the sale of a business or its assets.

• The relief reduces the rate of CGT on gains up to £10 million.
• Claims can be made on more than one occasion up to the £10 million lifetime limit.
• Gains over £10 million are charged at the usual CGT rate.

12.7 Payment of CGT can be deferred.

• You can get 'rollover relief' if you sell a building from which you trade (or certain other types of asset), and use the money to replace it with another.
• You can get 'reinvestment relief' if you reinvest the gain in qualifying shares in certain types of companies, under the Enterprise Investment Scheme (see 13).
• However, capital gains tax deferral relief has been withdrawn for gains re-invested in venture capital trust shares on or after 6 April 2004.