Your guide to capital gains tax for individuals in the UK

Every time you sell an asset for a profit, you will have to give the taxman a share of your gains. It is, after all, an income, and the Government taxes all income. Tax on profit from the sale of assets is capital gains tax and is imposed by HMRC only on the increased value of the asset i.e., the profit.

For example, if you bought your home for £1 million but sold it for £2 million, then only £1 million profit is taxable.

Here are the assets that fall under personal capital gains tax law –

  • personal possessions worth over £6,000, except your car.
  • property that’s not the principal place of residence;
  • your main home if it was rented, used for business or is very large
  • shares that are not in an Individual Savings Accounts (ISA) or personal equity plan (PEP);
  • all business assets

But, of course, taxes are never this simple, so let us delve deeper to understand all the rates and exemptions in more detail –

Exemptions –

UK citizens are eligible for an annual tax-free allowance called the Annual Exempt Amount (AEA) for capital gains tax. The AEA for 2019/2020 is set at £12,000 (for individuals, trustees for disabled people, and personal representatives) and £6,000 (for other types of trusts). You only have to pay CGT on profits that exceed this amount. AEA has an annual validity and can only be used during that particular year.  

CGT is not levied on the following assets –

  • A personal car 
  • Any personal item with an expected limited lifespan of 50 years, unless used for business;
  • Gifts to relatives, spouses, civil partners or charities;
  • Main residence
  • Things you give away to charity.

Rates for capital gains tax

In the UK, the rate of CGT is dependent on the person’s total taxable income. If you are deemed a basic-rate taxpayer (with an annual income of £50,000 or less), then you pay less CGT as compared to individuals who fall into the higher tax bracket. 

Tax brackets CGT on assets CGT for property
Basic-rate 10% 18%
Higher or additional-rate 20% 28%

Other rates are:

  • Trustees or personal representatives of someone who has died – 20% on assets and 28% on residential property
  • 10% for gains qualifying for Entrepreneurs’ Relief
  • 28% for CGT on the property where the Annual Tax on Enveloped Dwellings is paid, the Annual Exempt Amount is not applicable
  • 20% for companies (non-resident CGT on the disposal of UK residential property)

(What happens when you sell something for a loss?

Well, you can still profit from your loss by adjusting this amount against capital gains you made from selling other assets. If you haven’t sold any assets this year, then you can claim this capital loss for the next four years).

Report your CGT obligations –

You have two ways to report your Capital Gains Tax obligations: via Capital Gains Tax service or annually while submitting your Self Assessment (SA) tax return in the tax year after you had some gains. It is your job to calculate the profits and report them. Hence, it is advisable to keep all the original records of the value of the asset.  

When it comes to taxes, the sooner, the better – HRMC imposes hefty late fees starting from £100 with an additional £10 penalty added for each day. So don’t waste money, get all your paperwork sorted and file your taxes on time.

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