Capital Gains Tax rates are applied to gains made on the value of capital assets upon disposal. If an asset has increased in value since you acquired it, and you then dispose of it, you might have to pay Capital Gains Tax based on how much that value has risen. Equally, if the value has fallen then that loss can be used to lower the taxable value of gains from other assets that you may have benefited from.
You may be liable to pay Capital Gains Tax on an asset upon:
- Selling or exchanging the asset.
- Transferring or giving away the asset, for example as a gift.
- Receiving money due to the asset.
The first £9,200 of gains made each year fall under the Annual Exemption Amount, as capital gains upon which you do not have to pay tax. Excess gains are added to your taxable income, and taxed as if the top slice of the sum:
- 10% on the first £2,150.
- 20% on £2,150 to £33,300.
- 40% on value in excess of £33,300.
So if your taxable income is £20,000 and you have £10,000 in taxable gains, then the gains are taxed as if the top £10,000 of a sum of £30,000 taxable income, at a 20% rate.
There are a large number of exemptions and conditions surrounding Capital Gains Tax rates that can help reduce the total taxable gains that you are liable for taxation on. Additionally there is taper relief, by which the Capital Gains Tax rates are reduced on the basis of the length of time that you have held an asset, and whether it is a business or non-business asset. After 2 years, business assets benefit from a 75% reduction on the tax rate, while non-business assets reach a 40% reduction after 10 years. Thus after two years, a business asset that would be taxed at 20% falls to 5%, while after ten years a non-business asset that would be taxed at 20% falls to 12%.
Check out the contents of our online Fair Investment Tax Bookshop for more guides and information on Capital Gains Tax rates.