What is capital gains tax?
15 February 2022
One of the questions we get asked most often is: what is capital gains tax? In this post, we're sharing the main points you need to understand about capital gains.
To summarise:
- A capital gain is the profit you make when selling an asset.
- Some examples of assets where you may pay capital gains tax on are properties (not your main home), shares (apart from shares in an ISA), cryptocurrencies and business and some personal assets.
Capital gains tax
- If the ‘gain’ you make is less than £12,300.00, you do not need to pay capital gains tax. This is due to the capital gains allowance of £12,300.00.
- Any gains made above £12,300.00 will be charged at either 10% or 20% capital gains tax, depending on which tax bracket your income lies in.
- Properties have different tax rates - 18% or 28%. These tax rates also depend on the tax bracket your income lies in.
- If you have made a loss on an asset in a previous year, the losses can be brought forward against gains made, however, this can depend on the type of asset.
Other tax reliefs
- There is also a capital gains allowance for trusts up to £6,150.00.
- If you gift an asset to your civil partner, you do not need to pay capital gains tax on the asset received unless you separated/did not live together in that specific tax year (a tax year runs from the 06th April of one year to the 05th April in the following year), or the asset was given for the purpose to sell off for business use.
- You do not need to pay capital gains tax on assets that you give to charity. However, if you sell the asset for less than the market value or more than you paid for it, you may need to pay tax.
How to declare capital gains/losses
- Capital gains/losses can be declared via a self-assessment tax return.
- You will need to keep records of the assets such as the date you made the purchase alongside the amount, any costs associated with the asset (professional fees, stamp duty, improvement costs, etc.), and the date the asset was sold alongside the amount.
Further information
For any further information regarding capital gains, tax reliefs/allowances, or anything else, please contact us at 1st Class Accounts using the form below and we will be happy to help!
Reference:
https://www.gov.uk/capital-gains-tax/what-you-pay-it-on
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