Capital gains tax

Capital gains tax (CGT) is levied when you sell or give away an asset that has increased in value.

A flat rate of 18% applies to any “gain” or profit above an annual exempt amount, which stands at £9,600 in the 2008-09 financial year. However, “entrepreneur’s relief” on the disposal of a business effectively reduces the rate to ten per cent on gains of up to £1 million, accumulated during the taxpayer’s lifetime. The relief also applies to gains on disposals of certain shares and assets associated with a qualifying company.

There are exemptions to CGT, including the transfer of assets between married couples and civil partners and the profit on the sale of a principal residence. Other exemptions include gifts to charities, privately-owned cars and personal belongings where the sale proceeds are less than £6,000.

However the sale of a second home, shares or other property, such as antiques or jewellery, which has gained in value, is likely to be liable to CGT.

How to pay: CGT must be paid by 31 January after the end of each tax year. For example Capital Gains Tax on gains made in 2008-09 must be paid by 31 January 2010.

It is paid through the self assessment system, and will normally be calculated as part of your self assessment tax return.

The CGT tax regime is so complex that if you don’t receive a self-assessment tax return, but think you might be subject to CGT or want to claim losses, we recommend that you talk to a professional adviser.

There are numerous ways to pay your capital gains tax to HM Revenue & Customs, including Bacs, cheque, debit card or credit card, direct debit and internet banking.

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