Capital gains tax (CGT) is levied on profits made from the sale of assets. CGT is paid by individuals, trusts and personal representatives of deceased persons; gains made by companies are subject to corporation tax. In our latest forecast, we expect CGT to raise £8.8 billion in 2018-19. That would represent 1.1 per cent of all receipts and is equivalent to 0.4 per cent of national income.
The rate of CGT paid depends on the income of an individual and the type of asset being sold:
- Basic rate income tax payers are typically subject to lower CGT rates: 10 per cent on gains from most assets and 18 per cent on residential property and carried interest. Primary residences (i.e. one’s main home) are exempt from CGT;
- For trusts, and for individuals whose combined income and gains are above the higher rate income tax threshold, higher rates of CGT apply (20 per cent for most assets and 28 per cent on residential property and carried interest);
- Sole traders and partners selling their business may qualify for the lower Entrepreneurs’ Relief rate of 10 per cent, up to a lifetime limit of £10 million;
- Tax is only paid on gains above a threshold (the Annual Exempt Amount), which in 2018-19 is set at £11,700 for individuals and £5,850 for trusts.