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The Ultimate Guide to Capital Gains Tax in the UK

Updated: Apr 8

Index

  1. What Is Capital Gain Tax?

  2. What are the Capital Gains Tax Rates in the UK For 2021/22?

  3. How to Calculate Capital Gains Tax?

  4. What is Capital Gain Tax Allowance?

  5. How to Work Out If You’re Due to Pay CGT?

  6. When is Capital Gains Tax Levied?

  7. How to File & Pay Capital Gains Tax?

  8. How to Reduce/Avoid Capital Gains Tax UK?

  9. Are There Any Goods Exempted From the CGT?

  10. How Can We Help?






What Is Capital Gain Tax?

Capital gains tax is a tax on the gain when you sell something (an "asset") that has increased in its value. You have to pay tax on the profit you make, not the amount you receive. For example, You bought an antique painting for £1,000 and then sold it for £20,000. This means you gain £19,000 (£19,000 minus £1,000). It applies to an asset that held for more than one year.

This generally applies to:


● Investment funds

● Shares

● Second properties

● The sale of a business

● Inherited properties

● Valuables such as art, jewelry, and antiques


The rate of capital gain tax is totally different than income tax. This is because, buying such assets qualifies as risk-taking, either as entrepreneurship or as an investment, so the additional burden of risk carries a greater potential reward.




capital Gains Tax on property UK



What are the Capital Gains Tax Rates in the UK For 2021/22?

The following capital gains tax rates apply for the 2021/2022 tax year:


● 10% (18% residential property) on your total capital gains if your total annual income is less than £50,270


● 20% (28% for residential property) of your total capital gains if your total annual income is above the £50,270 threshold



How to Calculate Capital Gains Tax?

If you have a large number of taxable assets, this may take some time, if you calculate it manually, however, the government has published a capital gains tax calculator on the GOV.UK website. This page also lists some of the deductions, reliefs, and special circumstances that may be available. The world of tax contributions is incredibly complex; if done incorrectly it can lead to headaches, interest, and fines. To avoid these headaches you can hire a professional tax accountant that can help you to submit all your taxes.


What is Capital Gain Tax Allowance?

There is an annual capital gain tax allowance of £12,300. This is the amount of profit you can make before capital gain tax is applied. If your gains are under this amount (£12,300) in the financial tax year then there is no CGT(capital gain tax) liability. However, you can't carry forward to the following year if you don't make use of the allowance when selling your assets.


capital Gains Tax on Jewelry UK


How to Work Out If You’re Due to Pay CGT?

● Take the final value of the asset you have sold.

● Subtract what you originally paid for it. If you owned it before March 31, 1982, use its market value as of that date

● Subtract any costs you incurred for the sale of the asset. This can include stamp duty and advertising costs


When is Capital Gains Tax Levied?

You must pay CGT when:


● Personal items valued at £6,000 or more ( does not include your car)

● Property that isn't your primary residence

● Your primary residence if you are renting, commercial or very large

● The company's assets (equipment and machines, shares, registered trademarks, etc.)


How to File & Pay Capital Gains Tax?

If your taxable income exceeds your annual allowance, you must report and pay the CGT. This can be done in one of the following ways:


Using HMRC's "real-time" capital gains tax service: This service allows you to report any earnings and make payment immediately instead of waiting for the fiscal year to end.


Filing a Self Assessment tax return: You can also file a Self Assessment tax return (for this you need to register for this first). This must submit on October 31 for paper and January 31 for online.


capital Gains Tax on investment



How to Reduce/Avoid Capital Gains Tax UK?


So what can you do to reduce your CGT? Here are some tips/suggestions.

Use Your Allowance

The £12,300 is the allowance that you can use but you cannot carry it into the next financial years. Keep in mind, that everyone has their own allowance, so a married couple can make a profit of £ 24,600 in that tax year without paying any taxes.


Plan Your Sales Carefully

If you are using all or part of your CGT allowance for a particular year, consider delaying the sale of your property to the next tax year.


Gift Your Stock

You can gift up to $15,000 in stock to a family member who is in a lower income tax bracket (such as a retired parent or child). So if he or she sells the shares, he or she doesn't have to pay anything. You can also donate valuable stock to charities to avoid CGT and receive income tax deductions on the stock's fair market value.


Contribution to the Pension

The most effective way to reduce capital gains taxes for higher taxpayers is to put it into a pension fund. So if you pay into a retirement fund by distributing your fixed income tax, you get a tax benefit from the state.


Offset Any Losses Against Gains

Profits and losses realized in the same tax year must be offset against each other, which can reduce the taxable profit. If your losses exceed your profits, you can carry them forward to offset against gains in the future, provided you have registered these losses with HMRC


Register the Property as a Primary Residence

If you own multiple properties and want to sell one, you may be able to reduce or avoid your CGT by declaring it as your primary residence. The rules for this are pretty strict, so talk to your advisor about the best way to do this.


Manage Your Taxable Income

Since the CGT rate you pay depends on the income tax, so reducing the income tax rate can reduce the amount of your CGT.


Don’t Pay Twice

Another thing to bear in mind is that capital gains are wiped out on death, so your estate will pay inheritance tax rather than CGT. Incurring CGT by selling assets later in life can effectively mean you pay tax on the same asset twice. If in doubt, contact your financial adviser.


capital Gains Tax on the sale of business



Are There Any Goods Exempted From the CGT?

Yes. Here are some common examples:

● Private cars, even old ones

● Donations to UK registered charities

● Some government documents

● Bet Winning prices

● Cash

● Foreign currency for personal use.



How Can We Help?

If you wish to sell private or professional assets, we will be happy to advise you on the best way to proceed from a tax point of view. We can review your personal tax affairs to make sure it meets all of your compliance requirements and to suggest ways to reduce your tax liability. When you come to work with us, you will contact one of our qualified consultants who will be able to help you with all your tax questions.


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