Capital Gains Tax (CGT) is charged on profits earned from selling an asset or a property you own which is not your main residence.

The amount of Capital Gains Tax collected by the government increased by over £5 billion in the past two years, official figures from HM Revenue & Customs have shown.

The government raised £14.9 billion in CGT receipts in 2021/22, up from £9.8 billion in 2019/20, in part because of rising house prices and changes to the tax rules. With the annual CGT exemption frozen until 2026 and inflationary increases in the value of assets, it is likely the amount raised in CGT will increase.

An asset liable to CGT is any personal belonging worth over £6,000 (such as art, jewellery or antiques), as well as investments such as shares, unit trusts and investment trusts.

CGT on property which is not your usual home has to be paid within 60 days of completion of the sale or disposal of the property.

For anyone wishing to dispose of assets subject to CGT, individuals have annual exemptions of £12,300. To mitigate the potential impact of CGT above the annual exemption, married couples and civil partners can transfer assets between them allowing them to realise up to £24,600 of tax-free gains each tax year. Gifting an asset to a spouse or partner or a charity also falls outside of CGT liabilities.

The annual CGT exemption and the low the rate of CGT payable when gains exceed the exemption, can be useful tools in financial planning. For example, where an individual requires extra income but does not want to utilise income wielding products, because they may push them into the next income tax bracket, or they may already be paying income tax of 40% or 45%, selling growth investments so that any CGT liability from the sale falls under the annual exemption limit enables them to access the cash (income) tax free. In addition, any gains that do exceed the exemption will be taxed at current CGT rate of 10% for standard rate tax payers and 20% for higher rate payers (28% for sale of second properties).

Calculating CGT liability can be complex as it must factor in elements such as the original cost, cost of sale, sale price and income tax band. An Independent Financial Adviser can help you navigate the process.

Lowes Financial Management is Authorised and regulated by the Financial Conduct Authority.