Your Capital Gains Tax allowance is an annual sum of capital gains on which you are not liable to pay Capital Gains Tax. When you dispose of a capital asset, by selling it or transferring it, then any increases in its value since you initially acquired it are referred to as capital gains and are added to your taxable income for the year. However, there are many exemptions and laws surrounding this complex tax that can affect which assets are subject and how much you need to pay, and the Capital Gains Tax allowance is one means of reducing the impact of the tax on your finances.
The allowance takes the form of the Annual Exempt Amount (AEA).
Each year, the AEA allows for up to £10,600 as at 2012/13 being exempt from Capital Gains Tax.
No tax is paid on the exempt amount.
Capital gains in excess of the AEA are added to your taxable income as normal.
Other asset exemptions from the tax can include your car, assets valued at under £6,000 and potentially your primary residence. Losses made on capital assets can also be used to reduce the total amount of capital gains that you are liable to pay tax on.
For more information and advice on your Capital Gains Tax allowance, check out the links below and take a look at our Fair Investment Tax Bookshop, stocked with helpful tax guides and useful calculators.