Capital Gains Tax (CGT) is levied when you realize a profit from selling an asset you possess. It’s crucial to understand that this tax is based on the profit or ‘gain’ you achieve, not the total sale price.
What does Capital Gains Tax cover?
Primarily, CGT is a tax on the profit you earn from selling an asset. While it applies to the majority of assets when they’re disposed of, there are exceptions. For instance, selling your primary residence or personal belongings that fetch less than £6,000 are typically exempt.
Assets with a lifespan of less than 50 years have specific rules, so it’s wise to consult an expert if you’re unsure.
Gifts and CGT
Assets you receive as gifts (except from your spouse or civil partner) are also subject to CGT. The asset’s value at the time of the gift determines the tax. If you later sell the asset and make a profit, CGT is applied. However, there are reliefs available for gifts, so it’s advisable to consult an accountant.
Inheriting an asset doesn’t immediately trigger CGT. It’s only when you decide to sell the inherited asset that CGT becomes relevant. At that point, you’ll need to know its value when you inherited it. Keeping records of such assets can be beneficial, especially for insurance purposes or if they hold significant value.
Current CGT Allowance
For the tax years 2022/23 and 2021/22, the tax-free allowance for Capital Gains is £12,300.
Most CGT is paid through your annual Self Assessment. However, if you owe CGT from selling a non-primary residence, starting from 6th April 2022, you must settle the owed amount with HMRC within 60 days of the sale.
If you’re new to Self Assessment, you’ll need to register with HMRC by 5th October after the relevant tax year.
CGT Rates Breakdown
Your taxable income determines the CGT rate you pay. Once you’ve ascertained this, you can use tools like our capital gains tax calculator to determine your payable amount.
For the tax years 2022/23 and 2021/22, the following CGT rates are applicable:
- 10% or 20% for individuals (excluding residential property)
- 18% or 28% for individuals concerning residential property and carried interest
- 20% for trustees or personal representatives of deceased individuals (excluding residential property)
- 28% for trustees or personal representatives of deceased individuals for residential property sales
- 10% for gains that qualify for business assets disposal relief.
Overseas Assets and CGT
Even if your assets are overseas, you might still be liable for CGT. Your tax residency status in the UK can influence your tax obligations and potential exemptions.
Special rules apply to UK residents who aren’t domiciled in the UK. If this applies to you, it’s recommended to consult an accountant.
Other Tax Rates
As a business owner, you’ll be affected by various tax rates in the UK. For a comprehensive overview, refer to our articles on Taxes and their importance.
If tax intricacies have you puzzled, or you’re seeking guidance tailored to your situation, consider professional help.
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