Capital Gains Tax (CGT) is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. It’s the gain you make that’s taxed, not the amount of money you receive. For example, if you buy shares for £100 and later sell them for £200, you’d have to pay CGT on the £100 gain. CGT is charged on gains made by individuals, personal representatives, and some types of trusts. Companies pay Corporation Tax on their gains.

Types of assets subject to CGT:

Several types of assets you own are subject to CGT if you make a gain when you sell them or give them away. These include:

  • Shares - e.g. stocks and shares held in companies.
  • Securities - e.g. government bonds
  • Property - e.g. land, houses, other buildings, or parts of buildings
  • Personal possessions valued over £6,000 - excluding cars.
  • Business assets - e.g. business premises or assets used in a trade.
  • Other assets - intellectual property, investments, cryptocurrency, etc.

The most common assets people pay capital gains tax on are shares, securities and property. CGT may need to be paid on assets in the UK or abroad. Some assets are exempt from CGT.

Calculation of CGT and Tax Rates:

To work out your CGT liability, you subtract the price you paid for the asset (plus any improvement costs) from the amount you sold it for. This gives you your gain or loss. Gains and losses must be added to give a net gain for the tax year.

The CGT tax rates for 2023/24 are:

  • Individuals are subject to tax rates of 10% and 20%, which excludes residential property and carried interest.
  • Individuals are subject to 18% and 28% tax rates for residential property and carried interest.
  • Trustees or personal representatives get 20% except on residential property.
  • Trustees or personal representatives of deceased individuals can dispose of residential property and pay a 28% tax.
  • There are tax-free allowances, too. For 2023/24, these are:
  • Individuals - Annual Exempt Amount of £6,000
  • Trusts - Annual Exempt Amount of £3,000

Any gains more than the allowance are subject to the tax rates above. The tax rates and allowances usually change each tax year. If your total taxable gains, income, and dividends for the year exceed £50,270, you’ll be taxed at 28% on the gains from property and 20% on other assets.

Oxford Mail: Property can be subject to CGTProperty can be subject to CGT (Image: Getty Images)

Exemptions and reliefs:

  • Several types of disposals qualify for full CGT exemptions, including:
  • Gifts to your spouse or civil partner
  • Gifts to charity
  • Assets passing on death.
  • Betting, lottery, or pool winnings
  • UK government gilts and Premium Bonds
  • ISAs and PEPs
  • Your only or main home
  • Some other reliefs allow you to reduce the tax rate applied if certain conditions are met. These include:
  • Business Asset Disposal Relief - 10% CGT rate on disposal of qualifying business assets
  • 28% for Capital Gains Tax on a property where the Annual Tax on Enveloped Dwellings is paid, the annual exempt amount is not applicable.
  • 20% for companies (non-resident Capital Gains Tax on the disposal of a UK residential property)
  • Investors’ Relief - 10% CGT rate for disposing of shares in unlisted trading companies you’ve subscribed for

Reporting and paying CGT:

You must report gains and losses you’ve made in a tax year on your self-assessment tax return. The tax year runs from 6 April to 5 April. The filing deadline is 31 January after the end of the tax year. Any CGT due must be paid by this date, too. However, for residential property gains, an earlier deadline applies. CGT from residential property disposals must be reported and paid within 60 days of completion of the sale.

As a UK resident, you must report all your UK and worldwide gains, even if tax is not always due on foreign gains. Only UK asset gains need to be reported for non-domiciled if opted for on an arising basis. If you have unreported gains or income, disclosing it to HMRC using a worldwide disclosure facility is highly advisable.

In summary, Capital Gains Tax applies when you sell assets that have increased in value. Careful planning can maximize tax-free allowances and reliefs. Recording purchase costs and sale proceeds accurately assist with accurate reporting and payment of any tax due.