What is capital gains tax?
Capital gains tax is the tax that you pay on a gain or profit made by disposing of an asset. It is not the money received when selling an asset that is taxed but the gain that you have made whilst you owned it. So, if an asset was bought for £10,000 and you sold it 3 years later for £12,000, the gain would be £2,000.
What assets do capital gains tax apply to?
Capital gains tax applies to the majority of assets. However, some assets are exempt such as your car and personal assets of £6,000 or under. Profit made from the sale of your main home will usually be exempt from capital gains tax, but it will apply to profits made on the sale of a second property if it has increased in value – this might be a second home or a buy to let property for example.
What counts as a disposal?
Gains arise on disposal, not just selling, so you can become subject to capital gains tax in a number of scenarios that you may not expect. For example: gifts to other people; selling inherited assets; and the transfer of assets on divorce (depending on the date that the transfer is made and whether you are still living together) are all disposals for capital gains purposes and will be subject to capital gains tax. Making a gift of an asset to a spouse, civil partner or charity will not ordinarily lead to a capital gains tax liability.
What are the allowances and rates?
Firstly, you’ll need to work out if you need to pay anything. There is an annual tax-free allowance for capital gains, called the Annual Exempt Amount (AEA), so you’ll only need to pay this tax if your total taxable gains are above this amount.
Your calculations will need to be worked out for each asset, then added together before deducting any allowable losses.
The table below shows the various tax rates that apply:
| 2023/2024 Tax Year | |
|---|---|
| Basic rate tax payers rates of chargeable assets | 10% |
| Basic rate tax payers rates of applicable property sale | 18% |
| Higher rate tax payers rates of chargeable assets | 20% |
| Higher rate tax payers rates of applicable property sale | 28% |
| Effective rate after Business Asset Disposal Relief* | 10% |
| Lifetime allowance for Business Asset Disposal Relief * | £1 million |
| Annual capital gains tax free allowance (AEA) | £6,000 |
*More information on business asset disposal relief can be found here: Business asset disposal relief?
How do I report and pay my Capital Gains Tax?
Your Capital Gains Tax will need to be calculated, then reported and paid to HMRC. The details needed include the dates you acquired and disposed of the asset, the amounts of which it was paid and sold and any other relevant information such as costs you may have incurred when making improvements to said asset.
Any capital gains should be reported to HMRC on your self assessment tax return. However, if you are not registered for self assessment then you will need to make a submission using the Real Time Capital Gains Tax service.
What about capital gain from Property?
Any capital gains that relate to the disposal of a residential property or land that is not your main residence will also need to be reported, and any tax paid, within 60 days of the disposal using the dedicated real time service for property disposals. There are also instances where a disposal of your main residence could also need to be reported, for which we can provide the appropriate advice.