Capital Gains Tax (CGT) is a tax that is applied to any profits you make when you sell something you own for more than £6,000.
This can include:
personal possessions, apart from your car
a second property or buy-to-let
shares that are not in an ISA or Personal Equity Plan (PEP)
Every year, individuals are granted an 'annual exempt amount'. You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance.
For the 2021/22 tax year the individual Capital Gains tax-free allowance is £12,300. For couples that are married or in civil partnerships, the allowance is £24,600.
There are actually two different CGT rates, one that applies to property and one for other assets.
The CGT rates you pay depends on which tax bracket applies to you. For the the 2021/22 tax year the rates are as follows:
|CGT rate on assets||CGT rate on poperty|
|Basic rate payer||10%||18%|
|Higher or additional rate payer||20%||28%|
Yes. Any costs incurred in the purchase or sale, or any money spent on improving the assets can be deducted from your capital gains before CGT is applied.
For example, if you spent money on renovating the kitchen before you sold a property, you can deduct the cost from the profit you before you apply CGT.
Even if you're a basic-rate taxpayer (20%) it's possible that a large enough capital gain can push you into a higher-rate tax bracket. This means that you'll likely pay the higher rate of CGT on the amount that takes you over the threshold.
Follow these steps to calculate your Capital Gains Tax bill:
Work out how much taxable income you've earned from your salary, or other types of income. Your taxable income is your gross salary minus your tax-free personal allowance (£12,570 in 2021/22 for basic rate payers).
Now you can calculate your taxable capital gains by deducting the tax-free CGT allowance (£12,300 in 2020/21) and any costs incurred in selling or improving the asset from your profits. Then sum leftover is the amount on which you'll be charged CGT
Add your taxable capital gains to your regular taxable income. If you're a basic-rate taxpayer, £37,500 is the maximum you can earn for the 2020/21 tax year. Any income above this will be taxed at the higher rate. Add your taxable income and capital gains together, of the total is less than £37,500, you’ll pay basic-rate CGT. If the total pushes you over a higher tax threshold, you’ll pay the basic-rate on the portion up to the threshold, and the higher rate on the rest.
If you make a loss on a sale an asset, you report it to HM Revenue and Customs (HMRC) and deduct it from your total taxable gains. These are known as ‘allowable losses’.
If your capital gains still push above the annual exempt amount, you can deduct any unused losses from previous tax years.
You can report your loss in your tax returns. If you aren't registered for Self Assessment, you can write to HMRC instead.
Be aware that it's not necessary to report your losses right away. You have 4 years after the end of the tax year in which you sold the assets to report any losses.
If you sold property in the UK on or after 6 April 2020, you must report and pay any CGT due using a Capital Gains Tax on UK property account within 30 days of selling it.
If you fail to report any gains on UK property within 30 days of selling it, you may have to pay a penalty.
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