Capital gains tax (CGT) is levied when a UK resident disposes of any asset not exempted by the Inland Revenue. Similar to the income tax definition, the main way someone would be classed as a UK resident is if they spend 183 days or more in Britain within one fiscal year, ending on 5 April.
But there are also fiddly rules that can catch out those who spend less than 183 days per year here – frequent visitors to the UK, perhaps through work, are a common example.
The good news is that, even if you are a UK resident, quite a few widely held assets escape this tax altogether. The full list is lengthy, but prime examples include your main home (but not second properties), government bonds (“gilts”), and all so-called “wasting” assets – things that generally fall rather than rise in value, such as your car. Unfortunately, one very popular asset, shares not held within an Individual Savings Account, is normally hit.
So how does it work? Say the difference between the price at which you sell an asset and its original cost gives you a profit, or “capital gain”, of £12,000. This can be reduced by any losses you may have incurred on assets sold in previous years, say £1,000. Then you get an annual exemption, currently £9,600, which reduces the taxable amount down to just £1,400. Under rules introduced by the last budget, this is then taxed at a flat 18%, resulting in a charge of £252.
A word of warning: don’t assume that if you give away an asset, rather than sell it, you’ll escape this tax. HMCE can treat the gift as a disposal and use the asset’s estimated market value to calculate a tax charge, whether or not any cash changes hands. They’ll do the same if they suspect an asset was sold at a low price to evade tax. However, one thing that can be given away without triggering an immediate tax charge is Aim-listed shares. With these, the charge is deferred until an actual sale.