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What You Need to Know About Capital Gains Tax

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Calculating your Capital Gains Tax is an important part of running your business!

When you make a profit selling what you own, you must consider Capital Gains Tax. An important thing to remember is that taxes are calculated based on the profit you make, not the amount you sell. As the name suggests, everything is about what you gain!  

Thus, Capital Gains Tax is essentially a tax on any profit you make from the sale of assets, and it applies to most assets when you sell them. There are however some exceptions, for example, if you sell your primary residence or personal property for £6,000 or less, you don’t need to pay Capital Gains Tax.  

Inheritance and Gifts 

If you inherit an asset, you won’t need to pay Capital Gains Tax until you sell that asset. You will also need to know the value of the asset you inherit. This will allow you to calculate and report capital gains on your tax return if required. It may be a good idea to keep records of these assets so that if you decide to sell them, you have the necessary information to do so. Keeping a record of your assets can also be useful if you need to inform your insurance company if any of the assets you inherit are especially valuable. 

Capital Gains Tax also applies to assets obtained through gifts from other people (though generally not from your spouse or civil partner). The evaluation of the assets needs to be assessed at the time of gifting, and if capital gains are generated when the assets are disposed of, then taxation is applied. However, gifts could also be eligible for tax relief, so consult an accountant for more advice should this apply to you. 

How Much Can You Earn Before Having to Pay Capital Gains Tax? 

Your tax-free allowance from capital gains for the tax year 2021/22 is £ 12,300, which is an increase from £12,000 for the tax year 2019/20.  

As part of the annual self-assessment, you can pay for most types of capital gains that you may owe. However, if you need to pay Capital Gains Tax for the sale of a property that is not your primary residence, as of April 6, 2020, you must pay the amount you owe to HMRC within 30 days of the sale date.  

If you have not completed the self-assessment, you must register with HMRC by October 5 after the end of the relevant tax year in order to submit one. 

What Are the Capital Gains Tax Rates? 

The tax amount you pay depends on the overall sum of your taxable revenue and your marginal rate of personal tax, so you need to work this out first. The following Capital Gains Tax rates apply for the tax years 2021/22 and 2020/21: 

  • 10% or 20% tax rates for individuals (not including residential property.) 
  • 18% or 28% tax rates for individuals for residential property and carried interest. 
  • 20% for trustees or for personal representatives of someone who has died (not including residential property.) 
  • 28% for trustees or for personal representatives of someone who has died for the sale of residential property. 
  • 10% for gains qualifying for Business Asset Disposal Relief. 

Do You Have to Pay Capital Gains Tax on Sale of Overseas Assets? 

Even if your assets are abroad, you may still be subject to Capital Gains Tax. It is important to know whether you are a UK tax resident, as this may affect the amount of tax you pay and whether you are entitled to any allowances or exemptions.  

If you are a resident of the UK but not permanently based here (for example, if you work in another country and earn income there), then there are special rules surrounding Capital Gains Tax and how you may be subject to it. 

Final Thoughts 

There are many different tax rates in the UK that affect individuals and businesses. As a business owner, all of these will affect you. The calculation of Capital Gains Tax can be a very complex task. While you can calculate your capital gains yourself, hiring a competent tax accountant is highly advised. 

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