Capital Gains Tax (CGT) is a tax on the profits you make when you sell or dispose of an asset that has increased in value. In the UK, CGT applies to a wide range of assets including property, shares, and personal possessions worth more than £6,000.
When you sell an asset, you need to work out your gain (or loss) by subtracting the amount you paid for it from the amount you sell it for. This gain is then subject to CGT, which is calculated based on the rate applicable to your income tax band.
The current CGT rates in the UK are 10% for basic rate taxpayers and 20% for higher rate taxpayers, with an annual tax-free allowance of £12,300 for individuals and £6,150 for trusts.
However, these rates can vary depending on the type of asset you sell, and there are also certain reliefs and exemptions that may apply.
Capital Gains Tax On Real Estate
For example, if you sell a property that was your main home, you may be eligible for Private Residence Relief which means that you won’t have to pay CGT on any gains you make.
There are also reliefs available for business assets, such as Entrepreneur’s Relief, which can reduce the amount of CGT you need to pay.
It’s important to note that CGT is not payable on assets held within an ISA or a pension, as these are already tax-efficient products. Additionally, some gifts and inheritances may also be exempt from CGT.
If you’re liable for CGT, you must report the gain on a Self Assessment tax return and pay any tax due by the deadline of 31 January following the end of the tax year in which the gain was made. Failure to do so can result in penalties and interest charges.
Final Thoughts on Capital Gains Tax
Capital Gains Tax is a tax on the profits made when selling assets that have increased in value. While the rates can vary depending on the asset and your income tax band, there are certain reliefs and exemptions available that can reduce the amount of CGT you need to pay. It’s important to report any gains and pay any tax due on time to avoid penalties.