Who is exempt from Capital Gains Tax?
As with Income Tax personal allowances, taxpayers have an annual exempt amount for Capital Gains Tax (CGT) which is forfeited if not used. The annual exemption for individuals in 2020-21 is £12,300. A husband and wife each have a separate exemption. This also applies to civil partners who are treated in the same way as married couples for CGT purposes.
Married couples and civil partners should ensure that assets sold at a gain are either jointly owned or that each partner utilises their annual exempt amount wherever possible. Any unused part of the annual exempt amount cannot be carried forward and is forfeited if unused in the current tax year.
CGT is usually charged at a simple flat rate of 20%. If you only pay basic rate tax and make a small capital gain, the gain may be subject to a reduced rate of CGT of 10%. Once the total of taxable income and gains exceed the higher rate threshold, the excess will be subject to 20% CGT. A higher rate of CGT (8% supplement) applies to gains on the disposal of chargeable residential property.
If you have sold or are planning to sell any assets in the current tax year, 2020-21, it is important to ensure that you take full advantage of the annual CGT exemption and arrange your affairs to ensure the optimum CGT position. For example, capital losses are deducted from gains before net gains are calculated. Crystallising a loss that will waste the annual exemption should therefore be avoided.