A Guide to Capital Gains Tax
Capital Gains Tax can be confusing, so we've put together this no-nonsense guide to help you understand how it all works.
What is Capital Gains Tax?
If you sell a capital asset either as a business owner or an individual, you need to know that Capital Gains Tax (CGT) may be applied. CGT is a tax that’s paid on profits from selling or disposing of an asset.
If you sell the asset for less than you bought it for, CGT won’t apply because there’s no profit. The clue is in the name, as you’re only paying tax on what you’ve gained as a result of the transaction, rather than the final selling price of the asset.
When does Capital Gains Tax apply?
CGT will apply when you make a profit on the selling of certain assets, which can include the following:
Property that isn’t your main residence
Your main residence if you’ve let it out, used it for business or if it’s particularly large
Personal possessions worth £6,000 or more, excluding cars
Business assets such as machinery, shares and registered trademarks
Does CGT apply to inherited assets?
In the event that you inherit an asset, you don’t pay CGT on it. The only time you’ll pay CGT on an asset you inherit is if you sell it and its relative value has risen since acquiring it.
For instance, you’ll pay Capital Gains Tax on the profits of selling a property you inherited that rose in value between it becoming yours and transferring over to a buyer.
Does CGT apply to gifts?
If you receive assets as a gift and sell them, CGT will apply to the capital gain. However, there are some tax relief schemes available for gifts, which can help to reduce the amount you owe.
If you make a gift of assets to someone, you may need to pay Capital Gains Tax. This is dependent on who the assets are being gifted to, which is why seeking professional advice from TreyBridge Accountants is always recommended.
Unique situations
Capital Gains Tax may also apply to other situations concerning assets. One example is a valuable antique in your possession being damaged or stolen and resulting in an insurance payout. There’s a chance this may qualify for CGT, so you should always check if you’re uncertain to ensure that you don’t get in trouble with HMRC.
Capital Gains Tax Rates 2021/22
The amount you pay in CGT depends on your income, so please only use the following as a rough guide and get in touch with TreyBridge for a 100% accurate forecast.
Residential property basic rate: 10%
Residential property higher or additional rate: 20%
Other chargeable assets basic rate: 18%
Other chargeable assets higher or additional rate: 28%
Capital Gains Tax Allowance 2021/22
The CGT allowance is £12,300 for this tax year (2021/22), which is the same as the tax year 2020/21. This means you can make a profit of up to £12,300 on the sale of an asset without paying Capital Gains Tax.
When do I need to report and pay CGT?
It’s crucial that you take into consideration that Capital Gains Tax must be reported and paid very quickly. In the case of selling a qualifying property in the UK, it must be done within 30 days. If you don’t, a fine and interest will most likely be applied.
Need help with Capital Gains Tax?
Getting your tax right is of the utmost importance. Fill in our contact form below to find out how our tax specialists can help you to plan, reduce, report and pay your tax as efficiently as possible.
Tagged as: Personal Wealth
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