Capital Gains Tax Exemptions

Capital Gains Tax Annual Exempt Amount

All individuals are entitled to an annual Capital Gains Tax (CGT) exempt amount, which is £11,000 for the 2014-15 tax year. The annual exempt amount is deducted from chargeable gains after deducting losses and all reliefs. The deduction is made in the way that minimises the tax due.

The annual exempt amount cannot be carried forward if it has not been used in a tax year. It is therefore important to consider using the exempt amount each year, if possible, by making disposals.

Chattels And Wasting Assets

Chattels are completely exempt from CGT if the value at disposal does not exceed £6,000. This limit applies per person where a married couple jointly own a chattel. Where the disposal proceeds exceed £6,000, the chargeable gain cannot exceed five-thirds of the excess over £6.000.

Exempt Disposals And Exempt Assets

Some disposals are exempt from CGT because the asset is exempt or because the gain is wholly relieved from tax. Where a disposal is exempt, no allowable loss can be claimed.

The following are the main exempt disposals, including capital sums derived from assets:

  • An individual’s principal private residence.
  • Private motor vehicles.
  • National Savings Certificates and premium bonds.
  • Government and most corporate bonds, and government-guaranteed securities, owned by individuals.
  • Decorations for valour disposed of by the original owner.
  • Foreign currency for personal use outside the UK.
  • Debts repaid to the original creditor.
  • Gambling winnings.
  • Woodlands – see below.
  • Compensation or damages for a wrong or injury suffered in a profession or vocation.
  • Assets held in New Individual Savings Accounts (NISAs), Junior ISAs and child trust funds.
  • Shares in Venture Capital Trusts (VCTs).
  • Shares under the enterprise investment scheme (EIS) or seed enterprise investment scheme (SEIS) (but losses are allowable) on which income tax relief has been given and not withdrawn.
  • Shares with a value of up to £50,000 acquired by an employee under an employee shareholder agreement. Employee shareholders are given shares in their employers company in exchange for giving up certain employment rights.
  • Cash backs given by providers of goods or services as an inducement to purchase those goods or services, e.g. by mortgage lenders.
  • Disposals to a charity, housing associations or to certain national institutions.
  • Claims can be made for exemption on disposals of works of art, historic houses and other assets of national interest if certain conditions are satisfied.
  • Shares held by employees in a share incentive plan up to the date they are transferred to the employee absolutely.

Woodlands

Woodlands benefit from these tax advantages:

  • Woodlands managed on a commercial basis are also exempt from Capital Gains Tax.
  • Profits generated by the commercial occupation of woodlands in the UK are exempt from income tax.
  • Inheritance tax can be postponed until the trees are cut and the timber sold, provided the woodland has been owned for five years.