The UK Capital Gains Tax rules have a simple core but are made considerably more complex by the raft of special exemptions, regulations and conditions that surround them. Capital gains are calculated on any capital assets that you dispose of, whether sold or simply given away. If the value at the point of disposal has increased or decreased since the point at which you acquired the asset, this change in value goes towards assessing your capital gains for the tax year (and losses from a previous year can help mitigate the capital gains of later years). Once the sum of liable capital gains has been calculated, the process goes as follows:
- The first £9,200 of capital gains counts towards the AEA (Annual Exempt Amount) and is not subject to tax.
- Gains beyond this value are added to your taxable income for the year, and taxed as if the top portion of the sum – so a 10%, 20% or 40% tax rate depending on your income.
- Taper relief lowers the tax rate on individual assets depending on how long you have owned them before disposal.
The complexity of the UK Capital Gains Tax rules comes from the myriad of exceptions that are applied to capital gains, with the following selection as just a few of those at work:
- Your main private residence may be valid for private residence relief, making it exempt from Capital Gains Tax. For the purposes of exemption from the tax, it will remain your main residence for up to three years after you cease to use it as such, even if you have another main residence.
- Chattels with a predictable life of less than 50 years are exempt, along with chattels of £6,000 or less in value.
- Winnings from bets and lotteries are exempt.
- Some forms of securities and shares can be exempt from the tax.
For more information on UK Capital Gains Tax rules, check out our online Fair Investment Tax Bookshop and its stock of helpful guides and software.