If you have made a profit from selling or disposing of an asset in the UK, you may be liable for capital gains tax (CGT). Capital gains tax is a tax on the profit made from the sale or disposal of an asset, such as property or shares. This article will provide an overview of your capital gains tax obligations in the UK.
When do I need to pay capital gains tax?
You will need to pay capital gains tax if you have made a profit from the sale or disposal of an asset that is not exempt from capital gains tax. Examples of assets that are not exempt include:
- Property that is not your main residence
- Shares or other investments
- Antiques, artwork, and other collectibles
- Business assets
You do not have to pay capital gains tax on the sale or disposal of assets that are exempt. Examples of assets that are exempt include:
- Your main residence (in most cases)
- Cars and other personal possessions worth less than £6,000
- Gifts to your spouse or civil partner
- Assets held in tax-free savings accounts such as ISAs
How is capital gains tax calculated?
Capital gains tax is calculated on the profit you have made from the sale or disposal of an asset. You can deduct certain costs from the sale price to work out your taxable gain. These costs can include:
- The cost of buying the asset
- Costs associated with buying and selling the asset, such as legal fees and estate agent fees
- Costs of improving the asset, such as renovation costs
Once you have deducted these costs, you can then deduct your annual capital gains tax allowance. The current annual capital gains tax allowance is £12,300 for individuals and £6,150 for trusts.
The amount of capital gains tax you will have to pay depends on your income and the amount of the gain. The current capital gains tax rates in the UK are:
- 10% for basic rate taxpayers
- 20% for higher rate taxpayers
If the asset you are selling is a second home or a buy-to-let property, you may be subject to a higher rate of capital gains tax. In these cases, the current capital gains tax rates are:
- 18% for basic rate taxpayers
- 28% for higher rate taxpayers
How do I report capital gains tax?
You will need to report your capital gains tax on your self-assessment tax return. If you are not already registered for self-assessment, you will need to do so by 5th October following the end of the tax year in which you made the gain.
If you are unsure about your capital gains tax obligations, it is recommended that you seek advice from a tax professional or financial advisor. They will be able to help you calculate your taxable gain and ensure that you are compliant with all tax laws and regulations.