Capital Gains Tax (CGT) - taxable and tax-exempt assets
Many taxpayers in the UK are unaware of which assets are subject to Capital Gains Tax (CGT) and which are exempt. As this question comes up more and more frequently in conversations with clients, I decided to explain what CGT-liable assets are and discuss those that are exempt from this tax.
What is Capital Gains Tax and which assets are taxable?
Capital Gains Tax is a tax on profits made from the sale or other disposal of assets. According to regulations, all forms of property (both tangible and intangible) are considered taxable assets if a profit arises from their sale. This may include:
• Options and futures contracts – e.g., stock options or futures futures.
• Intangible assets – such as patents, copyrights, or goodwill.
• Cryptocurrencies – profits from the sale of such assets are treated similarly to other investments.
• Foreign currencies – any currency other than pound sterling may be considered a taxable asset, with certain exceptions.
• Real estate – both land and buildings, which are not your main residence, are subject to CGT.
• Shares, stocks, and bonds – gains from the sale of securities are taxable, unless they meet exemption conditions.
What assets are always exempt from CGT?
Some assets are always exempt from Capital Gains Tax, regardless of how they were acquired or disposed of. Here are the most important examples:
• Privately used motor vehicles
Cars, motorcycles, and other motor vehicles used for personal purposes are completely exempt from CGT, even if their value increased at the time of sale.
• Low-value chattels
Chattels (chattels) sold for less than £6,000 are exempt from CGT. This can include items such as furniture, antiques, or works of art.
• Wasting assets
Items with an expected lifespan of less than 50 years (wasting chattels), are also exempt, unless they were used for business purposes.
• Personal injury compensation
All amounts received as compensation for personal injuries (physical or professional) are exempt from CGT. This applies to sums paid both as a lump sum and in installments.
• Government bonds and savings certificates
Government bonds, such as Premium Bonds or indexed savings certificates, are completely tax-exempt. The same applies to children's savings bonds or annual plan certificates.
• Individual Savings Accounts (ISA)
All investment gains and interest earned within an ISA are exempt from CGT, making them a popular savings tool.
• Corporate bonds
Qualifying corporate bonds (qualifying corporate bonds) are exempt from CGT. This applies to both their sale and exchange.
• Decorations for bravery
Decorations awarded for gallantry (e.g., military medals) are not taxable if they were awarded to the person selling them.
Which assets are temporarily exempt?
Some assets are tax-exempt only under specific circumstances. For example:
• Foreign currency used for personal purposes
If you bought foreign currency to use during travel abroad or to cover costs related to an overseas property, the gains from its sale are exempt from CGT.
• Insurance policies
For most life insurance policies and deferred gains are tax-free.
• Winnings and Windfall Gains
All lottery winnings, betting, or competition prizes are not subject to CGT. This also applies to rights to these winnings, e.g., shares in group winnings.
• Principal Private Residence
Generally, the sale of a home that is your main and sole residence is exempt from CGT. However, if the home was rented out or used for business purposes, certain restrictions may apply.
Why should you know about these exemptions?
Understanding the rules regarding CGT-exempt assets allows for better financial planning and avoiding unnecessary tax burdens. These exemptions can also influence your investment decisions, especially if you are considering buying or selling assets.
If you have questions about specific assets or situations, feel free to contact me. I will explain the details and help ensure you benefit from the reliefs you are entitled to.
