What is Capital Gains Tax and who needs to pay it?

Capital Gains Tax (CGT) is a tax on the profit made when selling certain assets that have increased in value.

The rate of capital gains tax depends on your income and the type of asset sold.

In general, the tax is levied on the following:

  1. Property that is not your main home (e.g. buy to let), your main home  if you let it out, used it for business or it’s very large
  2. Shares that are not held in an ISA or PEP
  3. Business assets
  4. Personal possessions exceeding £6k value (excluding cars) e.g. antiques, art and jewellery.

As individuals we have an annual tax free-allowance so CGT would be payable on total gains above this amount, for 2023/24 this allowance is £6000.

The % rate of CGT you pay depends on your total taxable income for the tax year. So for 2023/2024, CGT on any gains falling within the basic rate Income Tax band is 18% for residential property and 10% on other assets. Higher rate taxpayers have different rates.

You don’t pay CGT on:

  • Gifts to your spouse, civil partner or charity
  • Winnings e.g. the lottery
  • UK government bonds

 

What if you make a loss when selling an asset?

You can deduct this amount from any gain in that year and you can deduct unused losses from previous tax years.

There will be exceptions and special rules for certain assets, so it is key that you keep accurate records of any transactions including original purchase cost, expenses (e.g. legal fees, stamp duty) and the selling price.

 

If you have multiple assets to dispose of there are strategic ways to do this to maximise your annual exemptions and reduce your overall tax liability.

As it can be complex to navigate, and rules and allowances can change please get in touch with us if you’d like to discuss this area of tax in more detail.

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