Enable’s IFAs in Bishop’s Stortford have come to see that Capital gains tax (CGT) is one of the least common taxes on income and one of the least well-understood tax by many. It is probably least well understood as for many it won’t apply to their financial planning.
Capital Gains Tax may, however, apply to your financial planning if you sell or give away an asset worth more than £6,000. But it doesn’t apply for main homes, cars or lottery/pools winnings, among other things. And each year, individuals have an annual exemption amount that allows them to receive some gains tax-free. Above these allowances, you are then eligible to pay CGT on all gains.
Capital Gains Tax in 2018/19 has an annual exemption amount of £11,700 for individuals. Standard CGT rate is 18% on residential property and there is a 10% rate on other assets. Higher CGT stands at a rate of 28% on residential property and 20% on other assets. Your rate of CGT will depend on your other taxable income. If you want to check in more detail there is some clear information on the HMRC website and Enable’s IFAs can help you work this out in person if you like.
Married couples are taxed individually on capital gains, so transferring an asset from one spouse to another before realising a gain can be tax efficient. As far as possible it is important to use the annual exemption each tax year because, if unused, it cannot be carried forward. If you give or sell assets to your spouse or civil partner, you won’t have to pay CGT, unless you separated and didn’t live together during that tax year of the assets you gave them were sold on via their business.
It’s worth giving or selling your assets to your spouse or civil partner if you’ll exceed the personal allowance of £11,700, but your partner won’t. That way, neither of you will need to pay CGT.