Capital Gains Tax | CGT | Rental Property Terminology | Vesta Glossary

A guide to capital gains tax

Capital gains tax is paid on the profits of the sale of most assets, but there are exemptions. Our guide will explain the details, especially relating to property.

What is capital gains tax?

Capital gains tax is the tax paid on the profit made from the sale of an asset when compared to the price it was purchased for. When it comes to property, capital gains tax (CGT) typically doesn’t apply to your main place of residence but will apply to second homes and rental properties.

What do you pay capital gains tax on?

CGT will need to be paid on any assets that have been sold for a substantial profit. This may include

  • Investments such as shares and bonds
  • Any UK property that isn’t your main residence, e.g. second homes and buy-to-let properties
  • Your main residence if you let part of it out or use it for business
  • Valuable items worth £6,000+ such as art, antiques and precious metals

Exemptions to capital gains tax:

While CGT is paid on most capital gains, it is not paid on all of them. As well as your main residence, the following assets are exempt from CGT:

  • Private cars
  • Gifts between spouses
  • Gifts to charities
  • ISAs or Peps
  • Betting and lottery winnings
  • UK government gilts and premium bonds
  • Life insurance pay-outs

How much is capital gains tax on UK property?

As previously stated, CGT will generally only apply to the sale of properties other than your main home, unless your home is part leased or used for commercial purposes.

In the UK, the basic-rate of CGT on assets other than property is 10%, with the higher-rate being 20%. However, with property, CGT rates are higher:

  • Basic-rate taxpayers – pay 18% CGT on profit made from residential property sale.
  • Higher/Additional-rate taxpayers – pay 28% CGT on profit made from residential property sale.
  • Trustees of recently deceased – pay 28% CGT on profit made from residential property sale.

It’s important to remember that any capital gains you make will be included when calculating your tax status for the year, which may affect your tax bracket.

All taxpayers have an annual CGT allowance, which means you can earn a certain amount of profit without paying tax on it. In 2018/19, you will not pay tax on capital gains of up to £11,700, while couples that share assets can combine this allowance to get a maximum potential tax-free allowance of £23,400.

For further information about capital gains tax and to find out exactly how much you will pay on the sale of your assets, visit the government’s capital gains tax page.

Important Note

All information contained in this website is provided as a guideline only, is based on estimates and assumptions, may not be accurate or complete, and is subject to change. We make no representations or warranties with regards to this information, expressed or otherwise. A buyer who relies on such information does so at their own risk. Buyers are advised to seek independent financial advice and should undertake their own due diligence.

Your capital is at risk. Property values may decline and the property might not be able to be rented at amounts sufficient to cover debt interest costs, operating expenses and liabilities, and might not result in a positive cash flow. Property is an illiquid asset and should not be viewed as a short-term investment.

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