Capital Gain Tax

Capital Gains Tax (CGT) is a tax you pay on the profit ('gain') you make when you sell, give away, exchange, or otherwise dispose of an asset that has increased in value. It's the gain, not the total amount received, that is taxed.  

Here's a breakdown of how CGT works:

1. What you pay CGT on:

·      Shares (outside of ISAs or pensions)  

·      Business assets

·      Land and property (that is not your main home)  

·      Most personal possessions worth £3,000 or more (excluding your car)

·      Certain types of investments

2. What you don't usually pay CGT on:

·      Your main home (due to Private Residence Relief)  

·      ISAs (Individual Savings Accounts) and pensions  

·      Gifts to your spouse or civil partner (in most cases)

·      Gifts to qualifying charities

·      UK government gilts and Premium Bonds

·      Betting winnings

3. How Capital Gains Tax is Calculated:

Calculate the gain

This is the difference between what you sold the asset for and what you originally paid for it (plus any allowable costs like estate agent fees or the cost of improvements).

Deduct allowable costs

Certain costs associated with buying, selling, or improving the asset can be deducted from the gain.

Deduct any capital losses

If you've made losses on other assets in the same tax year, you can usually deduct these from your gains. You can also carry forward unused capital losses to future tax years.  

Apply the Annual Exempt Amount (AEA)

This is a tax-free allowance for capital gains. For the 2024/2025 tax year, the AEA is £3,000 for individuals and personal representatives (£1,500 for most trustees). You only pay CGT on gains above this allowance. This allowance cannot be carried forward.  

Determine your taxable gain

This is the gain left after deducting losses and the AEA.

Apply the Capital Gains Tax rate

The rate you pay depends on your Income Tax band and the type of asset you've sold. For the 2024/2025 tax year (which runs until April 5th, 2025):

·      For gains on assets other than residential property:

·      18% if you're a basic rate Income Tax payer.

·      24% if you're a higher or additional rate Income Tax payer.  

·      For gains on residential property:

·      18% if you're a basic rate Income Tax payer.

·      24% if you're a higher or additional rate Income Tax payer.  

Important Changes from October 30th, 2024

The rates mentioned above (18% and 24%) for both general assets and residential property came into effect from October 30th, 2024. Before this date, the rates for general assets were lower (10% for basic rate and 20% for higher/additional rate taxpayers).

You usually report Capital Gains Tax through your Self-Assessment tax return.

The deadline for online filing is typically January 31st following the end of the tax year.  

If you sell a residential property in the UK, you usually need to report and pay any Capital Gains Tax within 60 days of the sale completion.  

It's important to keep good records of when you bought and sold assets, and for how much, to accurately calculate any Capital Gains Tax you may owe.