For higher rate tax payers, the CGT rate is 28% whilst it is 18% for basic rate tax payers.Certain types of assets are exempt from CGT. Gains on your main residence, classic cars, government gilts, ISA profits and gifts to charities, for example, are all exempt. Likewise, transfers between spouses/civil partners (assuming they aren't separated) can be made without triggering a tax liability.
The type of assets or transactions that may give rise to CGT include selling shares or unit trusts, disposing of a second property that does not qualify for the "main residence" exemption, or the sale by individuals of virtually any non-exempt asset.As with most tax matters, there are tax planning opportunities to help reduce the amount of CGT bill:
Annual ExemptionEach individual has an annual CGT exemption, currently £11,100, which means that CGT is only payable on gains in excess of this amount. Where the annual exemption has already been utilised in any one tax year, consideration could be given to deferring disposal of the asset until the commencement of the next tax year. Spouses and civil partners can transfer assets between each other on a no gain/no loss basis in order to make use of the annual exemption of the other spouse/partner. This can also be useful in reducing the CGT rate from 28% to 18% where the donor is a higher rate tax payer and recipient is a basic rate tax payer. Owning assets jointly between husband and wife or between civil partners automatically ensures that each person's annual exemption is available.
Allowable ExpenditureFrom the disposal cost, an individual can deduct certain costs and expenses incurred during the initial purchase and subsequent sale of the asset. These include dealing/purchase costs, sale expenses and the costs of certain capital improvements. These all help to reduce the actual gain on sale.
HMRC define "allowable expenditure" as being costs incurred in creating the asset, acquiring the asset, enhancing its value and "incidental costs of acquisition and disposal". So, if you've spent £15,000 restoring an antique before you sold it, for example, then you can effectively deduct that cost from the profit. Likewise, if you incur £1,000 of dealing costs when you sell shares then that is also an allowable expense.
Offsetting LossesAny allowable losses made on the sale/disposal of an asset can be used to reduce the chargeable gain of another asset in the same tax year. If the subsequent gain still exceeds the personal exemption amount then you can reduce that further by carrying forward a loss from a previous tax year.
For example, let's assume that a valuable painting is sold in tax year 2013/14 at a loss of £20,000. In the current tax year, two valuable antiques are sold, one producing a gain of £25,000 and the other a loss of £8,000. The £8,000 loss can be offset against the £25,000 gain to produce a net gain of £17,000 for the tax year 2015/16.
As that amount still exceeds the annual exemption of £11,100, £5,900 of the 2013/14 loss can be used to reduce the gain to the level at which there is no CGT payable. This still leaves an unused loss of £14,100 (£20,000 less £5,900) to carry forward for use in subsequent tax years.Under current rules, losses can be carried forward indefinitely but must be reported to HMRC within 4 years after the end of the tax year in which the loss arose.Have you made use of your annual CGT allowance yet? If not there is still time