Capital Gains Tax in the UK: Common Questions Answered

What is Capital Gains Tax (CGT)?

Capital Gains Tax (CGT) is a tax on the profit you make when you sell or dispose of an asset that has increased in value. This profit is known as a 'capital gain'. It's important to understand that CGT is not a tax on the total sale price, but only on the profit you make.

What Assets are Taxed?

CGT can apply to a variety of assets, including:

• Shares and other investments: This includes stocks, bonds, and investment funds.
• Business assets: Such as land, buildings, and equipment.
• Most personal possessions worth more than £6,000: Excluding your car.
• Property that is not your main residence: Such as buy-to-let properties or holiday homes.

What is the CGT Allowance?

Each tax year, you have a CGT allowance, also known as the Annual Exempt Amount. This is the amount of profit you can make before you have to pay CGT. For the 2023/24 tax year, the annual exempt amount is £6,000 for individuals and £3,000 for trusts. These allowances are subject to change by the government.

What are the CGT Rates?

The CGT rates depend on your income tax band and the type of asset you're disposing of. For the 2023/24 tax year, the rates are:

• Basic rate taxpayers: 10% on most assets and 18% on gains from residential property.
• Higher rate and additional rate taxpayers: 20% on most assets and 28% on gains from residential property.

How do I Calculate CGT?

Calculating CGT involves several steps:

1. Determine the disposal value: This is the price you sold the asset for.
2. Deduct the acquisition cost: This is the original price you paid for the asset, plus any allowable costs such as legal fees or improvement costs.
3. Deduct any allowable expenses: Such as estate agent fees or advertising costs.
4. Deduct your CGT allowance: This reduces the taxable gain.
5. Apply the appropriate CGT rate: Based on your income tax band and the type of asset.

Are There Any Exemptions?

Yes, several exemptions can reduce or eliminate your CGT liability:

• Private Residence Relief: You usually don't pay CGT on the sale of your main residence.
• Assets held in ISAs: Gains made within ISAs are tax-free.
• Gifts to your spouse or civil partner: These are generally exempt from CGT.
• Certain business assets: Business Asset Disposal Relief (formerly Entrepreneurs' Relief) can reduce the CGT rate on qualifying business disposals.

How Do I Report and Pay CGT?

You need to report your capital gains to HMRC (Her Majesty's Revenue and Customs). You can do this through:

• Self Assessment tax return: If you're already completing a Self Assessment tax return, you can include your capital gains information there.
• Real Time Transaction Reporting Service for Capital Gains on UK Property: If you sell a UK property that's not your main residence, you must report the gain and pay any CGT due within 60 days of the sale.

Seeking Professional Advice

CGT can be complex, and this article provides a general overview. It's always advisable to consult with a qualified accountant or financial advisor for personalized advice based on your specific circumstances. They can help you understand the rules, calculate your liability, and explore any available reliefs or exemptions.