However, because only a small minority of the population pay capital gains taxes on a regular basis, it can create some confusion. In this post, therefore, we list five things you should know about capital gains tax to help you both now and in the future. 

The capital gains allowance is analogous to the income tax allowance. You don’t have to pay any capital gains tax on gains less than £12,300. However, as soon as you go over this threshold in any given tax year, you incur taxes on the excess. So, for instance, if your capital gain is £13,300 in 2021-22, you’ll pay tax on the £1,000 above the £12,300 threshold. 

The government has been periodically increasing the capital gains tax allowance over recent years. However, this year it froze the figure in an attempt to claw back lost tax revenue due to the pandemic. 

How much you pay for capital gains depends on both the type of asset generating the profit, and your tax band. 

If you sell property (that is not your primary residence) and make a capital gain above the allowance and you’re a basic rate payer (you pay 20 percent income tax), then your capital gains tax rate is 18 percent. If you are a higher rate tax payer (40 percent and above), you’ll pay 28 percent on all gains. 

If you sell any other asset (such as shares), you’ll pay 10 percent capital gains as a basic rate taxpayer and 20 percent as a higher rate tax payer. 

You must pay CGT on any capital gains from the sale of stocks and shares in a regular share dealing account above the allowance for the year in which you make the sale. However, this rule does not apply if you hold the securities in a Stocks and Shares ISA. These accounts are a life-time tax shield against any capital gains, regardless of how much your portfolio appreciates. 

Sometimes companies you work for will give you shares as part of your pay package. However, whether you have to pay capital gains on them when you come to sell depends on the scheme they use. 

If you are awarded shares as part of a share-incentive plan (SIP), you do not usually have to pay capital gains tax. Upon receiving the shares, the tax authorities consider their current market value as the price you paid for them. So if you immediately sell them, CGT does not apply. However, if you hold onto them, the price rises and you sell them later, then you may have to pay tax. The same applies if you are on a save-as-you-earn (SAYE) scheme. 

Economists define capital as any asset with income-generating potential. But the government doesn’t view things the same way. It also applies capital gains tax when you sell certain items, including collectibles, antiques, art, wine and other valuable items whose prices tend to inflate over time. 

Capital gains do not apply to small items. However, you will be subject to it if the item sells for more than £6,000. Please note, though, that you only have to pay CGT if you go above your capital gains allowance. So, for instance, if you bought a painting for £1,000 and sold it for £10,000, that would imply a capital gain of £9,000. If your total capital gains from all your other assets for the relevant tax year was £0, then you would pay no CGT, since £9,000 is within the capital gains allowance. 

HMRC typically defines “wasting assets” as any asset with a life expectancy under 50 years. So, for instance, you don’t usually have to pay CGT on the sale of pleasure craft, wines and antique clocks, since these items depreciate over time.