Capital Gains Tax is a tax on the profit when you dispose of an asset that’s increased in value. You are taxed on the gain you make and not the amount of money you receive. Disposing of an asset includes selling it, giving it away as a gift, swapping it for something else or getting compensation for it (like an insurance pay-out).
You will pay capital gains tax on the disposal of assets which include; personal possessions worth more than £6,000 (apart from your car), property that is not your main home, your main home if you have let it out, used it for business or if it is very large, disposal of shares and the disposal of business assets of a sole trade or partnership (e.g. land & buildings, plant & machinery, registered trademarks, the business’s reputation).
Capital Gains Tax may not always be due as there is a tax free allowance called the Annual Exemption which for the current tax year 2019/20, is £12,000 and available to each individual. If your overall gain is less than the £12,000 annual exemption then no tax is due. You also don’t have any Capital Gains Tax to pay on any assets which you transfer or gift to your husband, wife, civil partner and gifts to charity.
There may be other reliefs which can be claimed depending on the particular asset sold, for example you may be entitled to claim Entrepreneurs Relief when you dispose of all or part of your business. There are conditions to be entitled to claim Entrepreneurs Relief but should this be available to you it results in a tax rate of 10%.
To calculate the gain it is usually calculated by taking the amount you sold it for, less what you paid for it. You are allowed to deduct the costs of buying, selling and or improving your asset which can include estate agent fees, solicitor’s fees and costs of improvement works. You may have been gifted an asset and if you later sell it, the original cost will be the market value at the date it was gifted.
New rules are being introduced from 6 April 2020 for UK residents that dispose of residential property and that a return and payment will need to be made to HMRC within 30 days of the date of completion and will apply to individuals, trustees and personal representatives. For UK residents a return will not be required where the gain on the disposal is not chargeable to CGT. Where a valuation cannot be completed within this time frame, reasonable estimates are allowed. You will still include this disposal in your yearly tax return and any difference in tax underpaid or overpaid will be dealt with at this point.
There are some assets which you do not pay capital gains tax on and some of these include ISA’s, Premium Bonds and lottery winnings.
If you think you may have Capital Gains Tax to pay on the disposal of assets you should make sure you keep all documentation relating to the disposal and contact your accountant to make sure it is correctly reported to HMRC.