An introduction to CGT

Every time you sell something, the taxman takes a look to see if you've made a profit. Under normal circumstances this is not an issue - as anyone who has ever sold a car will tell you, losing money is easy. However, with investments, the whole idea is to make a profit - and this is where the taxman gets interested.

Whenever you profit from the sale of an asset, you are deemed to have made a capital gain. This is calculated on the difference in value between the price at which you bought the asset (or its value if you were given it) and the price at which you sold it, minus any expenses incurred in the transactions. But very few people pay Capital Gains Tax (CGT) in full because with just a little bit of planning, you can minimise your liability.

First, you have some exemptions - your main residence, certain personal jewellery and your car, for example. In addition, you have an annual allowance (£9,600 for 2008/09) below which any gains realised are also tax free. There are some limitations over how this can be used, but it might be possible to stagger the sale of assets to use this allowance or help reset their base value against which future gains are measured.

Finally, you can use your partner's allowances - as transfers between spouses are CGT free - or Individual Savings Accounts which shelter investments from CGT completely.

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