Capital gains tax (or CGT) is a tax on any profits or gains you make when you sell or dispose of an asset. Be it a painting, an antique, shares or bonds, there are a few rules you should know.
What are the rules for this tax year?
In the current tax year (6th April 2020 to 5th April 2021), you can realise capital gains of up to £12,300 without having to pay capital gains tax. If your gains rise above this threshold – assuming your investments are outside an ISA or you have no losses to offset – you’ll have to pay. The rate of tax on gains over the exempt amount is 10% or 20%, depending on your taxable income.
Capital gains tax applies to the following:
- Most personal possessions worth £6,000 or more – apart from your car
- Property that isn’t your primary residence
- Your primary residence, if you’ve let it out, used it for commercial purposes or it’s particularly large
- Shares not in an ISA or PEP
- Business assets
If your only substantial investments are in an ISA or pension, you may not have to worry about capital gains tax. If you have other assets, perhaps company shares, a second home or artworks, you should pay close attention to your yearly allowance.
It may be worth spreading the disposal of large assets over different tax years to stay within the threshold.
If you have a spouse or civil partner, you can give assets to them without incurring capital gains tax, providing some conditions are met. That means they can effectively share their capital gains tax allowance with you.
How can Nutmeg help me?
If you don’t have an ISA already, you may be paying more capital gains tax than you necessarily need to. Anything you contribute to an ISA, up to the annual allowance of £20,000 in the 2020/21 tax year, is exempt.
At Nutmeg, we want to help you build a clear picture of what you owe and what you’re owed.
At the end of each tax year, we’ll supply you with a tax statement for any capital gains tax that you may be due to pay. If you don’t receive a capital gains report, this is because your gains are contained within a tax wrapper – in this case an ISA or pension – and not subject to capital gains tax.
As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Tax treatment depends on your individual circumstances and may be subject to change in the future.