Capital Gains Tax (CGT) advice and support
Capital Gains Tax (CGT) is the tax liable on profits made from selling or disposing of assets.
Capital Gains Tax is only chargeable on any profits realised, not the value of the entire asset.
You purchase a sculpture for £15,000 and later sell it for £40,000. This represents a gain of £25,000. You pay Capital Gains Tax on the £25,000 profits made, not the full sale amount.
Disposing of an asset
Disposing of an asset includes:
- selling it
- giving it away as a gift, or transferring it to someone else
- swapping it for something else
- getting compensation for it – like an insurance pay-out if it’s been lost or destroyed
Capital Gains Tax allowances
CGT is payable only on your total gains over and above your annual tax-free allowance, also referred to as the Annual Exempt Amount (AEA).
Currently the AEA Rate is:
- £12,300, or
- £6,150 for trusts
- Tax is normally exempt on gifts to your spouse, civil partner, or a charity.
When is CGT payable?
You will pay Capital Gains Tax or CGT when you sell (dispose of) the following:
- Capital Gains Tax on Property – Property, which is not your main residence – unless, you have let your property, have used it for business purposes, or if it is very large. Since April 2020, residential property disposals require a return and any tax to be paid within 60 days of completion.
- Most personal possessions valued over £6,000 – apart from your motor vehicle
- Capital Gains Tax on shares purchased which are not in the form of an Individual Savings Account (ISA) or Personal Equity Plan (PEP).
- On any business assets.
- If you sell or give away crypto assets (cryptocurrency assets such as Bitcoin and Ethereum, etc.) you may also have to pay CGT.
These are referred to as ‘chargeable assets’.
Depending on the type of asset, you may be able to reduce any tax you pay by claiming a relief.
Jointly owned assets are also subject to Capital Gains Tax. In this case, you pay CGT on your share of any profits.
When is CGT not payable?
As well as not paying CGT until you surpass your Annual Exempt Amount (AEA), you will not pay CGT on gains when selling certain types of assets, including:
- ISAs or PEPs
- UK government gilts and Premium Bonds
- Betting, lottery, or pools winnings
- As a rule, you will not have to pay CGT when making a gift to a charity, but you will have to pay CGT if you sell an asset to a charity for more than you paid for it or if you sell it for less than the market value.
You may also be able to reduce your tax bill by deducting losses or claiming reliefs. This will depend upon the type of asset.
What is the Capital Gains Tax rate?
The Capital Gains Tax rate depends on the type of asset you are selling and whether you are a higher rate Income Taxpayer or fall into the basic Income Tax rate.
For Higher Rate Income Taxpayers, CGT rates are currently as follows:
- 28% on gains from residential property, excluding your main residence.
- 20% on gains from other chargeable assets
For basic rate Income Taxpayers the Capital Gains Tax rate becomes more complicated and will depend upon:
- the size of any gain
- combined with your taxable income and;
- whether your gains come from selling residential property, excluding your main residence, or through selling other assets.
If you are a trustee or business, you will pay:
- 28% on the sale of residential property
- 20% on other chargeable assets
A sale of business assets might qualify for Business Asset Disposal Relief, which would give an effective tax rate of 10%. To be eligible for Business Asset Disposal Relief you must have been trading for at least two years.
There are more complicated conditions for selling shares and securities so do speak to a Capital Gains Tax expert before making any decisions.
Paying Tax after an inheritance
When you inherit an asset, IHT is normally paid by the estate of the person who has died. In this instance, Capital Gains Tax is only chargeable if your later dispose of one of these inherited assets.
You may have to pay Capital Gains Tax if your asset is located outside the UK. Special rules apply in this instance if you are a UK resident but not domiciled. In this case, you can claim the remittance basis.
If you live abroad
You will still have to pay tax on any gains made on the sale/disposal, property, or land in the UK, even if you are classed as non-resident for tax purposes. However, you do not pay Capital Gains Tax on other UK assets, for example shares in UK companies, unless you return to the UK within 5 years of leaving.
Capital Gains Tax-free assets
Complexity of CGT
As with most tax issues the complexity of CGT can be very confusing for the novice. There are also penalties if you calculate your liabilities incorrectly. We therefore recommend you seek professional Capital Gains Tax advice to ensure you remain compliant on all areas of CGT whilst also maximising on your CGT tax opportunities.
Capital Gains Tax Advice – How we can help
Our personal tax accountants and tax advisors are very experienced in the area of Capital Gains Tax and other personal tax issues. They will assist you with planning ahead to optimise the use of your tax allowances and reliefs to keep your Capital Gains Tax liability to a minimum.
To start your tax planning please book a free initial Capital Gains Tax advice consultation to see how we can help.
For more details on our range of tax services click here.