Capital Gains Tax (CGT)

What is Capital Gains Tax

Capital Gains Tax is a tax payable to HMRC when you sell or dispose of an asset and make a profit upon the sale or disposal. Disposal includes giving away or exchanging the asset.

What assets are liable for Capital Gains Tax

Assets liable for Capital Gains Tax include:

  • Any property that is not your main residence
  • Shares not held in an ISA or a pension
  • Business assets
  • Personal possessions with a value in excess of £3,000. These include:
    • Jewellery
    • Antiques
    • Paintings
    • Coins
    • Stamps

What assets are not liable?

Motor vehicles used to carry passengers for personal use are exempt from CGT. This includes classic cars. Motor vehicles not exempt include:

  • Racing cars
  • Taxi cabs
  • Single seat sports cars
  • Commercial vehicles such as lorries, van, buses etc
  • Motor bikes, scooters etc.

Are there any exemptions to paying?

It is unlikely you will have to pay CGT on your main residence or any gifts made to your spouse, civil partner or charity.

How much will you have to pay?

How much you must pay will depend upon:

  • The amount of profit you have made
    • Profit is the difference between the amount you sold the asset for and the amount the asset was worth when you purchased or received it plus costs.
  • The type of asset
    • Assets are divided into property and ‘other chargeable assets’
  • Your income tax band
    • The amount of CGT you pay depends upon whether you are a basic or higher-rate taxpayer.
    • If you’re a higher or additional rate taxpayer you will pay:
      • 24% on your gains from residential property
      • 20% on your gains from other chargeable assets
    • If you pay basic rate Income Tax the rate you will pay:
      • 18% on your gains from residential property within the remaining basic rate band and 24% on any gains within the higher rate band
      • 10% on your gains from other chargeable assets
  • Your current tax free allowance
    • The Capital Gains tax-free allowance is £3,000 and £1,500 for trusts

Example 1:

GAINS

  • Property purchased 10 years ago for £350,000
  • Property sold now for £500,000
  1. Total gain (profit) = £150,000 (CGT is payable on this amount)

DEDUCTIONS

  • Costs for purchasing the property (estate agent and solicitor fees) £5,000
  • Costs for improving the property (not general maintenance) whilst you owned it £50,000
  • Costs for selling the property were £7,000
  1. Total costs = £62,000

TAXABLE GAIN

  1. Taxable gain = £88,000

A Total Gain (£150,000) – B Total costs(£62,000) = C (£88,000)

ANNUAL CAPITAL GAINS EXEMPTION ALLOWANCE

Allowance = £3,000

YOUR TAX RATE

Assuming you are a basic rate tax payer

YOUR TOTAL GAIN £20,915
Value when you sold the property £500,000
Minus the value of the property when you acquired it £350,000
Minus all costs, including improvements £62,000
Total gain £88,000

 

Your deductions
Capital Gains Tax Annual Exempt Amount used £3,000
Total deductions £3,000

 

Your taxable gain
Total gain £88,000
Minus deductions £3,000
Taxable gain £85,000

 

These rates are based on your Income Tax bands:
£20,450 taxable gain multiplied by 18% tax rate £3,681
£64,550 taxable gain multiplied by 24% tax rate £15,492
Tax to pay £19,173

 

Example 2:

GAINS

  • You were gifted or inherited a piece of jewellery worth £15,000
  • You now sell the piece of jewellery for £29,000
  1. Total gain (profit) = £14,000

DEDUCTIONS

  • Costs for selling the asset (Advertising) £500
  1. Total costs = £500

TAXABLE GAIN

  1. Taxable gain = £13,500

A Total Gain (£14,000) – B Total costs (£500) = C (£13,500)

ANNUAL CAPITAL GAINS EXEMPTION ALLOWANCE

Allowance = £3,000

YOUR TAX RATE

Assuming you are a higher rate tax payer

 

YOUR TOTAL GAIN £20,915
Value when you sold the asset £29,000
Minus the value of the asset when you acquired it £15,000
Minus all costs £500
Total gain £13.500

 

Your deductions
Capital Gains Tax Annual Exempt Amount used £3,000
Total deductions £3,000

 

Your taxable gain
Total gain £13,500
Minus deductions £3.,000
Taxable gain £10,500

 

These rates are based on your Income Tax bands:
£10.500 taxable gain multiplied by 28% tax rate £2940.000
Tax to pay £2940.00

How to reduce capital gains on your assets

There are a number of ways to reduce capital gains payable on your assets:

  1. Gift assets to your spouse or civil partner. You can both use the CGT allowance thereby doubling your exempt amount.
  2. Forward any losses from the past four years to offset gains.
  3. Don’t forget to deduct costs. These can include any advertising for the selling of assets, commissions payable to selling agents and professional fees.
  4. Ensure you use up your ISA allowance. ISA investments are not liable for CGT so by transferring more money into your ISA you can reduce your CGT liability.
  5. Pay more into your pension. By increasing your pension contributions you may be able to reduce your taxable income level and thereby reduce the tax you pay on CGT.
  6. Take professional advice. A professional financial advisor will be able to ensure you are making the most of any reliefs, allowances and exemptions that you may not be aware of.

What if you were gifted an asset and do know the original value

To determine the fair market value (FMV) of an asset that you do not know the original value of, you will need to seek the advice of a professional. For property values, a Chartered Surveyor will be able to assist. For antiques, jewellery etc, visit your local professional who will be able to look at the item and provide a valuation.

What if you make a loss when selling your assets?

If you made a loss on selling your assets you can deduct these as ‘allowable losses’ from any other gains made during the same tax year.

You may also claim these allowable losses for up to four years after the end of the tax year in which you disposed of the asset making a loss.

How do you report any Capital Gains?

To find out how to report  CGT on UK property take a look at our article which has all the information you need.

To report CGT on assets other than property you can report your gain via two ways:

  • Include the gain in a self-assessment tax return
  • Use the ‘real time’ Capital Gains Tax Service available online at the HMRC website. You will need to set up a Government Gateway account to use this service.

When do you need to report Capital Gains Tax?

For UK residents the deadlines for reporting CGT are:

  • Land and property               60 days of completion of the sale
  • Assets other than property 31 January following the end of the tax year

What happens if you don’t report Capital Gains?

If you are late in reporting your CGT and miss the deadline you will be subject to a penalty. Penalties range from £100 for missing the deadline up to 6 months up to £300 or 5% of any tax due over 6 months.

HMRC have ways of detecting if CGT is owed via land registry records, bank transfers and financial records held by your bank or building society If you fail to report your Capital Gains you may be subject to a fine. This could lead to you having to pay far more than you originally owed.

 

Important

Please be aware this article is a general overview of Capital Gains Tax for UK residents. We highly recommend using a qualified accountant when calculating any liability due. An accountant may be able to help you make significant savings due to the many reliefs and exemptions that affect your personal circumstances.

At Maynard Johns, we also have an online Capital Gains Tax calculator service. Get in touch with us now on 01237 472071 or email info@maynardjohns.co.uk to discuss how we can help.

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