What is Capital Gains Tax?
Definition of Capital Gains Tax
Capital Gains Tax is a tax that can be payable if you sell certain large items of equipment.
Capital Gains Tax might be due on your personal assets and if you're a sole trader or partner in a partnership, it might also be due on assets owned by your business.
Some assets are exempt from Capital Gains Tax. These include your main home, a personal car, and most assets worth under £6,000.
You'll usually pay Capital Gains Tax on the difference between the amount you sell an asset for and how much you originally bought it for.
Everyone gets an annual exemption to use against any taxable gains up to a certain amount, which is currently £12,300. This means that you'd only have to pay Capital Gains Tax on gains above £12,300. If you make a gain of £3,000 on selling a painting, for example, and no other gains in the tax year, you'd have nothing to pay because £3,000 is below the annual exemption.
If your business is a limited company, then instead of Capital Gains Tax the company will pay Corporation Tax on any money it makes from selling its assets (known as "chargeable gains").
For more information, take a look at HMRC's guidance on Capital Gains Tax for businesses.
Disclaimer: The content included in this glossary is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this glossary. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.