Capital Gains Tax

Capital Gains Tax (CGT) is paid by an individual when they have either sold or ‘disposed’ of an asset and made a gain on the original price they paid for it. The potential tax is only paid on the gain and not on the total sale value.

For example, if you bought some shares in Company X for £10,000, and then later sold these for £25,000, your total gain on which you would potentially pay capital gains tax would be £15,000.

However, each individual is entitled to an annual capital gains tax allowance, of £12,300 for the 2020/21 tax year, on which all gains within this amount are free of tax. So, on our above example of £15,000 gain, only £2,700 of this would be taxed (£15,000 minus £12,300).

One important rule that is often overlooked and could potentially be a powerful tax planning tool, is that you do not normally pay Capital Gains Tax on assets you transfer to your husband, wife or civil partner. ​This can be really useful where one party has utilised their full allowance and the other has not, as you can potentially double your annual allowance.

​You can also use losses to reduce any gain. When you report a loss, the amount is deducted from the gains you made in the same tax year.​ If your total taxable gain is still above the tax-free allowance, you can deduct unused losses from previous tax years. If they reduce your gain to the tax-free allowance, you can carry forward the remaining losses to a future tax year.

Nothing contained in this article constitutes or should be construed to constitute investment, legal, tax or other advice. The information contained in this article shall in no way be construed to constitute a recommendation with respect to the purchase or sale of any investment.