If you have sold or disposed of an asset and made a profit, you may have a liability to Capital Gains Tax (CGT). However, one of the ways that you can avoid paying Capital Gains Tax is to use your annual CGT allowance. This means that you can make a certain amount of capital gains every year without having to pay any tax.
Our guide tells you everything you need to know about your annual Capital Gains Tax allowance.
The Capital Gains Tax Allowance
In every tax year, most people with a liability to Capital Gains Tax benefit from an annual tax-free allowance. This means that you only pay Capital Gains Tax if your overall gains for the tax year (after deducting any losses and applying any reliefs) are above this amount, called the ‘annual exempt amount’.
Nearly everyone who is liable to Capital Gains Tax gets this tax-free allowance.
There is one Annual Exempt Amount for:
- Most individuals who live in the UK
- Trustees for disabled people
- Executors or personal representatives of a deceased person’s estate
In the current tax year (2010/11) the ‘annual exempt amount’ for individuals, personal representatives and trustees for disabled people is £10,100.
Executors and personal representatives
If you are acting as a personal representative (or an executor) for a deceased person’s estate you are entitled to get the full ‘annual exempt amount’ during the administration period. This is the time it takes to settle the deceased person’s financial affairs and obtain a grant of probate.
In this situation, you are entitled to the ‘annual exempt amount’ for the tax year in which the person died, and for the following two tax years.
Trustees for disabled people
Disabled persons (for the purposes of capital gains tax) are those with mental health problems or who receive the middle/higher rate of Attendance Allowance or Disability Living Allowance (DLA).
If you are acting as a trustee for a disabled person you are entitled to use the full ‘annual exempt amount’.
Other trustees that do not fall into the category above are entitled to a lower Capital Gains Tax allowance. In the 2010/1 tax year this allowance is £5,050.
People who are ‘non-domiciled’ in the UK
If you are ‘non domiciled’ in the UK – for example if you were born in another country and it is your intention to return there – you are not eligible for the ‘annual exempt amount’. As HMRC say, however, ‘issues of domicile and tax on foreign gains are complicated. A lot depends on the facts of each case… speak to your Tax Office about your specific circumstances.’