Capital Gains Tax - CGT

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Table of Contents

What is Capital Gains Tax?

If you dispose of an asset, that has seen increase in the value since your ownership began, then most likely you will need to pay tax on it. Capital Gains Tax is the tax on gain you make on disposal, not on the actual amount you receive. Some assets you owe are free from Capital Gains Tax

What is disposal of asset?

Disposal of asset includes:

  1. Sale of the asset
  2. Giving the asset away as a gift or transferring the ownership to someone else
  3. Swapping of the asset for something else
  4. Getting the compensation for the asset, such as insurance pay out.

Which assets are free from Capital Gains Tax?

General rule states that the gifts to your husband, wife, or civil partner are exempt from CGT. Also, your personal possessions with a limited lifespan of less than 50 years such as your personal car or any other machinery are also exempt from CGT.

What you pay CGT on?

You should pay CGT on:

  1. Most personal possession worth £6,000 or more
  2. Properties that’s not your main residence
  3. Your main residence, if you have let it, used it for a business
  4. Any shares you hold which are not ISA or PEP

What are the rates of CGT?

Every individual has £12,300 of CGT free amount. This amount calls Annual Exempt Amount. Unfortunately, you cannot carry any unused allowance to the following years. You will pay the CGT according to your main tax rate. If you are a higher rate taxpayer, you will need to pay 20% on your gains from chargeable assets and 28% on your gains from residential properties. If you are a basic rate taxpayer, you will pay 10% on gains from the chargeable assets and 18% on gains `from residential properties.

Do I need to report CGT and when?

You will need to report your capital gain if it exceeds the annual exemption allowance. When to report and pay CGT will depend on the type of assets have been sold or disposed of. Gain on residential properties in the UK with a completion date on or after 27 October 2021 must be reported and paid within 60 days of completion. You should report the chargeable gains on all other assets in the tax year after you sold or disposed of an asset if you use a Self-Assessment tax return.

What shall I do if I made loss on disposal?

We would highly recommend you report all your capital losses on your self-assessment tax return. You can carry your losses for up to 4 years after the end of the tax year that you disposed of the asset. Otherwise, you can offset them against your total taxable gains.

How to reduce CGT? 

Click here to learn more

CGT on residential property- the 30 day rule

Click here to learn more

CGT rules for divorcing couples

Click here to learn more

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