What is Capital Gains Tax?

A capital gain arises when you dispose of an asset that has increased in value. You will pay tax on the profit you have earned i.e. the sale proceeds less the allowable cost.

The most common types of asset on which Capital Gains Tax is payable are:

  • Personal possessions worth £6,000 or more, excluding your car
  • Property, excluding your main home unless it has been rented out, used for business or is very large
  • Shares
  • Business assets

Everyone is entitled to an annual tax-free allowance (£12,300 for 2021/22 and 2022/23, reducing to £6,000 in 2023/24 and £3,000 in 2024/25) and no Capital Gains Tax is payable if your total gains in any tax year are below this amount, although depending on the level of sale proceeds you may still need to report the gain to HMRC.

The amount of tax you will pay is dependent on what type of asset you have disposed of and whether you are a higher-rate tax payer or not. Your total income, including the capital gain, will determine how much of the gain will be taxed at basic rate and how much will be taxed at the higher rate.

Capital Gains Tax is currently charged at:

  • Basic rate of 18% or higher rate of 28% on gains from residential property
  • Basic rate of 10% or higher rate of 20% on all other gains

You may be able to reduce the tax you pay by claiming certain reliefs.

If you have sold residential property in the UK, you must report it and pay the tax to HMRC within 60 days of completion using the HMRC ‘real time’ Capital Gains Tax service. You must also declare the gain on your Self Assessment income tax return, if you complete one.

If you have disposed of any other chargeable assets (such as shares or personal posessions over £6,000), you can choose whether to report it and pay the tax by 31st December in the tax year after you made the gain by using the HMRC ‘real time’ Capital Gains Tax service, or you can report it on your Self Assessment income tax return. If you don’t normally complete a tax return then using the real time CGT service will save you having to register for Self Assessment.

Please contact us if you need assistance with calculating or reporting your capital gain and to find out what reliefs you may be entitled to.