Do you know what you pay tax on?

Capital gains tax is one of the less common taxes people pay, but it can sometimes be an unexpected and unwelcome tax that can catch you out. Ian Tongue explains the basics of the levy and some common areas where capital gains tax can arise.

What is capital gains tax?

Capital gains tax (CGT) arises on gains from capital assets, in contrast to income tax which is largely paid on earnings and savings.

CGT can be a complex tax and historically the calculations were quite involved, but fundamental changes were introduced in 2008 which did simplify matters, for individuals at least.

For an individual, the rate of CGT paid is dependent on whether they are a basic-rate or higher-rate taxpayer to either pay the standard rate of CGT or higher rate of CGT respectively.